Rising expectations of a Bank of Japan rate hike, coupled with a weakening dollar, caused the USD/JPY pair to break below key support.
2025-12-16 13:47:55
The Japanese yen extended its gains at the beginning of the week, hitting a one-and-a-half-week high during Asian trading hours. Markets widely believe that the probability of a rate hike by the Bank of Japan at its upcoming policy meeting has significantly increased, and this expectation is the core factor driving the yen's strength.
Meanwhile, global stock market sentiment was cautious, with some investors increasingly worried about valuation levels and potential bubbles in the AI theme, leading to a return of safe-haven demand and further strengthening the relative advantage of the yen.
The Bank of Japan Governor Kazuo Ueda's previous remarks were seen by the market as an important signal, pointing out that the economic and inflation outlook was gradually in line with the central bank's benchmark scenario, which enhanced the credibility of policy normalization.
Furthermore, the latest quarterly business survey shows that confidence among large Japanese manufacturers has risen to a four-year high, providing a realistic basis for the central bank to continue tightening policy. Although the latest private sector survey shows that manufacturing remains in contraction territory and service sector momentum has slowed slightly, it has not shaken the market's overall assessment of a Bank of Japan rate hike.
However, further significant appreciation of the yen still faces certain constraints. Concerns surrounding the fiscal situation persist, and Prime Minister Sanae Takaichi's proposed large-scale fiscal spending plan has drawn market attention to Japan's debt burden, which to some extent limits the yen's upside potential.
Therefore, yen bulls remained relatively restrained ahead of the central bank meeting. In contrast, the dollar generally weakened. As the market increased its bets on further interest rate cuts by the Federal Reserve, the dollar index hovered near a two-month low.
Despite the Federal Reserve's continued cautious stance, the interest rate futures market has begun pricing in a more aggressive easing path. Furthermore, expectations that future Fed leadership may adopt a more dovish stance continue to exert downward pressure on the dollar.
Against this backdrop, the downward trend of the USD/JPY exchange rate continued, with significant divergence in policy expectations putting pressure on the exchange rate. In the short term, market sentiment will remain cautious, with traders inclined to await guidance from the Bank of Japan's meeting results and US non-farm payroll, PMI, and inflation data to confirm the next direction.
From a technical perspective, the USD/JPY pair is showing a clear weakening trend. The exchange rate had previously encountered resistance near short-term moving averages multiple times, failing to break above the 100-hour moving average, indicating significant selling pressure. Subsequently, the price broke below the important psychological level of 155.00, releasing a bearish technical signal and giving short-term bears the upper hand.
On the downside, the intraday low around 154.35 forms the first important support level. A test of this area could trigger short-term speculation. If this support is breached, the psychological level of 154.00 will become the next key defense. A break below this level could open up further downside potential, and the exchange rate may continue its downward trend from the past week.
From a rebound perspective, the 155.40 area has become an initial resistance zone. This level previously served as support in the short-term consolidation range and now acts as resistance. If the exchange rate attempts to rebound but fails to regain a foothold in this area, the upside potential will be significantly limited.
Only after breaking through the aforementioned resistance can the price potentially challenge the 100-hour moving average near 156.00. Overall, technical indicators on both the hourly and daily charts are bearish, and coupled with divergent policy expectations, the USD/JPY pair still faces downward pressure in the short term.
Editor's Note:
The current USD/JPY exchange rate clearly reflects the stark contrast between the Bank of Japan's policy shift and expectations of further easing by the Federal Reserve. Amidst rising risk aversion, the yen has regained favor with investors, while the dollar lacks clear support.
If the Bank of Japan signals an interest rate hike as the market expects, the downward trend of the USD/JPY exchange rate may continue; conversely, if the policy stance is cautious, short-term volatility may intensify, but the overall direction still depends on whether the policy gap between the two central banks continues to widen.
Meanwhile, global stock market sentiment was cautious, with some investors increasingly worried about valuation levels and potential bubbles in the AI theme, leading to a return of safe-haven demand and further strengthening the relative advantage of the yen.
The Bank of Japan Governor Kazuo Ueda's previous remarks were seen by the market as an important signal, pointing out that the economic and inflation outlook was gradually in line with the central bank's benchmark scenario, which enhanced the credibility of policy normalization.Furthermore, the latest quarterly business survey shows that confidence among large Japanese manufacturers has risen to a four-year high, providing a realistic basis for the central bank to continue tightening policy. Although the latest private sector survey shows that manufacturing remains in contraction territory and service sector momentum has slowed slightly, it has not shaken the market's overall assessment of a Bank of Japan rate hike.
However, further significant appreciation of the yen still faces certain constraints. Concerns surrounding the fiscal situation persist, and Prime Minister Sanae Takaichi's proposed large-scale fiscal spending plan has drawn market attention to Japan's debt burden, which to some extent limits the yen's upside potential.
Therefore, yen bulls remained relatively restrained ahead of the central bank meeting. In contrast, the dollar generally weakened. As the market increased its bets on further interest rate cuts by the Federal Reserve, the dollar index hovered near a two-month low.
Despite the Federal Reserve's continued cautious stance, the interest rate futures market has begun pricing in a more aggressive easing path. Furthermore, expectations that future Fed leadership may adopt a more dovish stance continue to exert downward pressure on the dollar.
Against this backdrop, the downward trend of the USD/JPY exchange rate continued, with significant divergence in policy expectations putting pressure on the exchange rate. In the short term, market sentiment will remain cautious, with traders inclined to await guidance from the Bank of Japan's meeting results and US non-farm payroll, PMI, and inflation data to confirm the next direction.
From a technical perspective, the USD/JPY pair is showing a clear weakening trend. The exchange rate had previously encountered resistance near short-term moving averages multiple times, failing to break above the 100-hour moving average, indicating significant selling pressure. Subsequently, the price broke below the important psychological level of 155.00, releasing a bearish technical signal and giving short-term bears the upper hand.
On the downside, the intraday low around 154.35 forms the first important support level. A test of this area could trigger short-term speculation. If this support is breached, the psychological level of 154.00 will become the next key defense. A break below this level could open up further downside potential, and the exchange rate may continue its downward trend from the past week.
From a rebound perspective, the 155.40 area has become an initial resistance zone. This level previously served as support in the short-term consolidation range and now acts as resistance. If the exchange rate attempts to rebound but fails to regain a foothold in this area, the upside potential will be significantly limited.
Only after breaking through the aforementioned resistance can the price potentially challenge the 100-hour moving average near 156.00. Overall, technical indicators on both the hourly and daily charts are bearish, and coupled with divergent policy expectations, the USD/JPY pair still faces downward pressure in the short term.
Editor's Note:
The current USD/JPY exchange rate clearly reflects the stark contrast between the Bank of Japan's policy shift and expectations of further easing by the Federal Reserve. Amidst rising risk aversion, the yen has regained favor with investors, while the dollar lacks clear support.
If the Bank of Japan signals an interest rate hike as the market expects, the downward trend of the USD/JPY exchange rate may continue; conversely, if the policy stance is cautious, short-term volatility may intensify, but the overall direction still depends on whether the policy gap between the two central banks continues to widen.
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