Diverging expectations for US and Japanese monetary policies, coupled with safe-haven demand, have kept the USD/JPY pair fluctuating at high levels.
2026-01-08 13:22:55
During Thursday's Asian trading session, the Japanese yen (JPY) reversed its slight weakness from the morning session, stabilizing and rebounding against a generally weaker dollar, temporarily ending its two-day losing streak against the dollar.
Market expectations that the Bank of Japan (BoJ) will continue to normalize monetary policy, along with concerns about potential intervention in the foreign exchange market, have jointly supported the yen. Conversely, the dollar has been pressured by expectations of a dovish Federal Reserve policy.
Discussions about the path of interest rate cuts this year have intensified, limiting the upward momentum of the US dollar and putting significant resistance on the USD/JPY pair around 157.00.
However, the yen's rebound is not without its challenges. Newly released data shows that Japan's real wages fell 2.8% year-on-year in November, the largest drop this year and the 11th consecutive month of decline.
This result indicates that inflation is still outpacing wage growth, creating uncertainty for the Bank of Japan's (BOJ) future interest rate hike pace. BOJ Governor Kazuo Ueda stated this week that wages and prices may rise in tandem in the future, and the BOJ will continue to decide whether to raise interest rates further based on economic and inflation performance.
Nevertheless, the market as a whole still tends to believe that the Bank of Japan will continue to tighten policy, which contrasts sharply with market expectations that the Federal Reserve may cut interest rates again in March and later this year.
Changes in interest rate differential expectations make the low-yielding yen still somewhat attractive in the medium term. In the US, economic data released on Wednesday were mixed. The ISM non-manufacturing PMI rose to 54.4, indicating improved service sector activity, but labor market data remained relatively weak.
ADP data showed that private sector employment increased by only 41,000 in December, below market expectations; job openings also declined, reflecting cooling demand for labor. These factors failed to significantly weaken the market's assessment of the Federal Reserve's dovish stance.
Traders are generally cautious ahead of key data releases, preferring to wait for Friday's US non-farm payrolls report to further confirm the Fed's future pace of interest rate cuts, which will be a significant catalyst for the USD/JPY exchange rate.
From a daily chart perspective, the USD/JPY pair remains within a medium-term upward channel, but recent repeated resistance around 157 indicates increasing selling pressure. While the price remains above major moving averages and the long-term trend is not yet broken, the upward slope has shown signs of slowing.
In terms of technical indicators, the RSI is above 50 but momentum is slowing, indicating that the bulls still have an advantage but it is no longer strong. If the exchange rate effectively breaks below the support area of 156.20-156.30, it may trigger a phase of pullback; conversely, if it regains its footing above 157 and rises with increased volume, there is still a possibility of testing the previous high in the short term.
Editor's Note:
The current core driver of the USD/JPY exchange rate is the continued divergence in monetary policy expectations between the US and Japan. In the short term, the yen is supported by expectations of policy normalization and safe-haven demand, but weak wage data limits its rebound potential.
Ahead of the release of US non-farm payroll data, the exchange rate is more likely to maintain a high-level consolidation pattern. If the US employment data is significantly weaker, the narrowing interest rate differential expectations may push the USD/JPY exchange rate further down; conversely, a stronger data release may slow the pace of the correction.
Market expectations that the Bank of Japan (BoJ) will continue to normalize monetary policy, along with concerns about potential intervention in the foreign exchange market, have jointly supported the yen. Conversely, the dollar has been pressured by expectations of a dovish Federal Reserve policy.
Discussions about the path of interest rate cuts this year have intensified, limiting the upward momentum of the US dollar and putting significant resistance on the USD/JPY pair around 157.00.
However, the yen's rebound is not without its challenges. Newly released data shows that Japan's real wages fell 2.8% year-on-year in November, the largest drop this year and the 11th consecutive month of decline.
This result indicates that inflation is still outpacing wage growth, creating uncertainty for the Bank of Japan's (BOJ) future interest rate hike pace. BOJ Governor Kazuo Ueda stated this week that wages and prices may rise in tandem in the future, and the BOJ will continue to decide whether to raise interest rates further based on economic and inflation performance.
Nevertheless, the market as a whole still tends to believe that the Bank of Japan will continue to tighten policy, which contrasts sharply with market expectations that the Federal Reserve may cut interest rates again in March and later this year.
Changes in interest rate differential expectations make the low-yielding yen still somewhat attractive in the medium term. In the US, economic data released on Wednesday were mixed. The ISM non-manufacturing PMI rose to 54.4, indicating improved service sector activity, but labor market data remained relatively weak.
ADP data showed that private sector employment increased by only 41,000 in December, below market expectations; job openings also declined, reflecting cooling demand for labor. These factors failed to significantly weaken the market's assessment of the Federal Reserve's dovish stance.
Traders are generally cautious ahead of key data releases, preferring to wait for Friday's US non-farm payrolls report to further confirm the Fed's future pace of interest rate cuts, which will be a significant catalyst for the USD/JPY exchange rate.
From a daily chart perspective, the USD/JPY pair remains within a medium-term upward channel, but recent repeated resistance around 157 indicates increasing selling pressure. While the price remains above major moving averages and the long-term trend is not yet broken, the upward slope has shown signs of slowing.
In terms of technical indicators, the RSI is above 50 but momentum is slowing, indicating that the bulls still have an advantage but it is no longer strong. If the exchange rate effectively breaks below the support area of 156.20-156.30, it may trigger a phase of pullback; conversely, if it regains its footing above 157 and rises with increased volume, there is still a possibility of testing the previous high in the short term.
Editor's Note:
The current core driver of the USD/JPY exchange rate is the continued divergence in monetary policy expectations between the US and Japan. In the short term, the yen is supported by expectations of policy normalization and safe-haven demand, but weak wage data limits its rebound potential.
Ahead of the release of US non-farm payroll data, the exchange rate is more likely to maintain a high-level consolidation pattern. If the US employment data is significantly weaker, the narrowing interest rate differential expectations may push the USD/JPY exchange rate further down; conversely, a stronger data release may slow the pace of the correction.
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