USD/JPY Price Forecast: Dollar Climbs to ¥155.80 as Japan’s Wage Boom and 90% BoJ Hike Odds

USD/JPY Price Forecast: Dollar Gains to 155.80 as BoJ Rate Hike Bets Collide with Fed Cut Expectations

Wage Growth, Earthquake Impact, and Policy Divergence Shape Yen Volatility

The USD/JPY pair trades at 155.80, up 0.30% on the day, holding near a two-week high as global investors position ahead of the Federal Reserve’s decision this Wednesday. The market now faces a rare divergence: Japan moving toward tightening while the U.S. prepares to ease. This structural policy split has pushed volatility in yen pairs to multi-month highs, with traders recalibrating exposure following Japan’s 7.6-magnitude earthquake and strong wage data that reinforce the Bank of Japan’s (BoJ) tightening bias.

BoJ Rate Hike Probability Hits 90% as Wage Data Strengthens Inflation Outlook

Japanese wage growth continues to redefine the BoJ’s macro stance. Average cash earnings rose 2.6% year-on-year in October, up from 2.1% in September, marking the third consecutive month of acceleration. Overtime pay grew 1.5%, signaling sustained labor market demand. The union federation UA Zensen plans to seek a 6% wage increase in 2026, after securing a 4.75% rise in 2025, amplifying structural inflation pressures. The BoJ swaps curve now implies a 90% probability of a 25bps rate hike to 0.75% on December 19, the most aggressive pricing since the bank exited yield curve control. Markets interpret this as the final phase of ultra-loose policy, confirming the end of Japan’s deflationary era that lasted over three decades.

Japan’s Inflation Resilience Offsets GDP Contraction

Revised Q3 GDP data showed the economy contracted 0.6% quarter-on-quarter, worse than the preliminary 0.5% decline. However, the GDP deflator — a broad measure of inflation — surged to 3.4% from 2.8%, confirming entrenched price momentum. Private consumption rose 0.2%, double initial expectations, while capital expenditure fell 0.2%, reversing prior estimates. These figures reinforce the narrative that inflationary forces in Japan are now structural rather than cyclical. Despite the weaker growth headline, the nominal economy remains firm, validating the BoJ’s shift toward normalization.

U.S. Fed Cut Expectations Limit Dollar Upside

Across the Pacific, the Federal Reserve is expected to deliver a 25bps rate cut this week, with CME FedWatch assigning an 88% probability. However, speculation of a “hawkish cut” persists — meaning the Fed could ease rates while signaling caution against rapid easing in 2026. Core PCE inflation at 2.8% year-on-year remains above target, giving Chair Powell limited room to sound dovish. U.S. Treasury yields rose overnight, supporting the dollar’s rebound, yet investors anticipate three to four rate cuts next year as inflation cools and growth decelerates. This widening divergence — BoJ tightening versus Fed easing — has placed the USD/JPY pair at a policy crossroads.

Earthquake and Fiscal Uncertainty Weigh on Yen Outlook

The 7.6-magnitude earthquake in northern Japan introduced fresh uncertainty into monetary policy timing. Damage assessments continue, but analysts expect fiscal stimulus to follow, increasing government borrowing and pushing Japanese Government Bond (JGB) yields higher. Ten-year JGB yields surged to 1.97%, the highest since 2007, as investors anticipate an expanded reconstruction budget. Although this dynamic supports a stronger yen through yield differentials, it also risks delaying the BoJ’s next rate hike should the economic disruption deepen. For now, traders treat the event as JPY-neutral, balancing reconstruction optimism against policy risk.

Technical Picture: USD/JPY Faces Dual Resistance at 155.50 and 156.15

The pair has broken above a descending channel formed in November, confirming short-term bullish momentum. Resistance stands at 155.50 — the prior December high — followed by 156.15 and 156.60. A sustained break above 156.60 could open room toward 157.90, the November peak, though intervention risk remains high near those levels. On the downside, immediate support lies at 155.27, followed by 154.35 and the channel base at 154.00. The Relative Strength Index (RSI) hovers near 57, indicating mild bullish momentum, while the MACD continues to widen in positive territory. The market is preparing for volatility spikes as traders hedge positions ahead of the Fed and BoJ decisions.

Market Positioning: Yen Bulls Accumulate as Funds Trim Dollar Exposure

CFTC data shows speculative long positions in the yen rose 14% week-over-week, the largest increase since May 2024. Hedge funds are betting on yen appreciation through early 2026, expecting rate differentials to compress as the BoJ hikes and the Fed cuts. Meanwhile, commercial traders remain net long on USD/JPY for hedging, reflecting real-sector exposure rather than speculative momentum. The U.S.–Japan 2-year yield spread narrowed to 412bps, down from 437bps in early November — a key signal supporting yen strength over the medium term.

Macro Correlation and Volatility Dynamics

Cross-asset behavior confirms growing yen sensitivity to U.S. yields. The pair’s 90-day correlation with the U.S. 10-year Treasury yield now stands at 0.84, meaning every 10bps drop in U.S. yields typically translates to a 0.4-point decline in USD/JPY. Implied volatility rose to 9.7%, up from 7.5% last week, marking the highest level since the October 2022 intervention window. Japan’s Ministry of Finance has not intervened recently but maintains readiness near 158.00–159.00, the levels associated with prior coordinated actions.