USD/JPY Struggles Above 156.00 As Fed Easing Bets Collide With BoJ Hawkish Signals
The USD/JPY pair trades just above 156.00 after retreating from last week’s 158.00 highs. The yen gained momentum amid strong Tokyo CPI data, rising retail trade, and accelerating industrial production. Tokyo’s headline CPI increased 2.7% year-on-year in November, with the core reading stable at 2.8%, defying expectations of a decline. Japanese retail trade surged 1.7% versus the forecasted 0.8%, while industrial production rose 1.4%, sharply outperforming expectations of a -0.6% drop. These figures have revived speculation that the Bank of Japan (BoJ) may raise rates by 25 basis points in December or early 2026, which has strengthened the yen against the dollar.
Fed Dovish Shift Pressures the Dollar as Rate-Cut Odds Hit 86.9%
The U.S. dollar remains subdued as traders price in aggressive easing from the Federal Reserve. The CME FedWatch tool now assigns an 86.9% probability of a rate cut on December 11, with the federal funds rate expected to fall to 3.75%. U.S. core PPI rose just 0.1% in the latest reading versus expectations of 0.2%, and retail sales came in at 0.2%, missing the forecasted 0.4%. Treasury yields fell back below 4.00% on the 10-year, driving the DXY Index down from the 100 area to around 99.20. The narrowing yield differential between Japan and the U.S. continues to fuel yen demand and reduce dollar inflows.
BoJ Fiscal Tensions Limit Yen Gains Despite Hawkish CPI Data
While inflation pressures justify tightening, Japan’s fiscal imbalances remain a concern. Prime Minister Sanae Takaichi recently approved a ¥21.3 trillion ($136 billion) stimulus program, adding to record national debt. This expansionary stance limits the BoJ’s room for policy tightening, tempering yen gains. At the same time, long-term Japanese Government Bond (JGB) yields have surged to two-decade highs, signaling market stress around funding costs. However, BoJ board member Asahi Noguchi stated that monetary tightening would proceed gradually, reinforcing expectations for a slow normalization path rather than a rapid series of hikes.
Technical Outlook: USD/JPY Consolidates, Key Levels at 155.00 and 158.20
The USD/JPY pair continues to consolidate within a narrow band between 155.00 and 158.20. On the daily chart, RSI has eased from overbought conditions above 70 to near-neutral levels, reflecting reduced momentum. The MACD histogram remains flat around zero, suggesting indecision. Resistance is firm at 158.20, marking the yearly high and major bullish barrier for 2025. A breakout above this level could reestablish the long-term uptrend toward 160.00. On the downside, immediate support lies at 156.00, with deeper levels at 155.00 and 153.30, aligned with the 50-day moving average. A sustained break below 155.00 would mark the end of the October rally and potentially trigger a reversal toward the mid-150 range.
Market Sentiment and Policy Divergence: The Tension Builds
Market behavior shows a growing divergence between U.S. dovishness and Japan’s cautious hawkish turn. Traders are now reassessing positions ahead of the Fed’s blackout period, with volatility expected to spike as both central banks move in opposite directions. Risk sentiment remains mixed: optimism around a Russia–Ukraine peace proposal and weaker U.S. data have supported equities but weighed on the dollar’s defensive appeal. Meanwhile, speculation about a dovish successor to Fed Chair Jerome Powell has deepened the bearish bias on the greenback.
TradingNews.com Verdict
The USD/JPY structure has shifted from a one-sided rally to a corrective consolidation. Strong Japanese macro data, firm inflation, and rising rate expectations are likely to keep the yen supported near-term, while Fed-driven rate-cut expectations weaken the dollar. However, Japan’s heavy fiscal expansion and structural debt risk limit long-term yen strength. The pair’s path into December will depend on whether the BoJ confirms a hike and if the Fed delivers its anticipated cut.
Verdict: HOLD (156.00–158.00 Range) — Momentum remains neutral with mild yen bias. A decisive move below 155.00 could flip sentiment bearish, while a break above 158.20 would reinstate bullish momentum toward 160.00.
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