USD/JPY Price Forecast - Pairs Surges After BoJ’s 0.75% Hike as Pair Eyes 161.50 Resistance

USD/JPY After BoJ’s 0.75% Hike: When Tightening Still Weakens The Yen

The Bank of Japan has finally lifted policy out of the emergency era, raising its short-term rate from 0.50% to 0.75%, the highest level in roughly thirty years and agreed by unanimous vote. Headline inflation is around 2.9% and core inflation close to 3.0%, clearly above the BoJ’s 2% target, yet the Japanese yen weakened instead of strengthening. USD/JPY jumped about 1.45% on the day of the decision to roughly ¥157.7 and then continued to probe the upper band of its recent range, pushing toward the high-150s and testing higher levels. The price response is direct: the market cares far more about the relative interest-rate gap and global capital flows than about the symbolism of the first hike in decades.

Rate Differentials Keep USD/JPY Biased Higher

Even after the BoJ’s move, the rate spread versus the United States remains wide. The Fed funds rate sits around 3.75%, while the BoJ is only now at 0.75%, leaving an approximate 300-basis-point advantage in favor of the dollar. For USD/JPY, this is the textbook configuration for a persistent carry trade: investors borrow in yen at very low cost and allocate into higher-yielding dollar assets. As long as US policy remains in a “higher for longer” configuration and the BoJ continues to move in small increments, structural demand for long USD and short JPY persists. A single 25-basis-point step from Tokyo does not change the fact that, on a relative basis, Japan is still the funding leg in global portfolios.

US Inflation Dynamics And Expectations Support The Dollar Leg

On the US side, the latest inflation and expectations data keep the dollar fundamentally supported. Headline CPI has eased to around 2.8%, which on the surface looks benign, but one-year consumer inflation expectations just printed at 4.2%, slightly above the 4.1% consensus. Some of the apparent cooling in prices also reflects technical assumptions in the data rather than a clean, broad-based collapse in inflation pressure. Markets have reacted by pushing out the expected timing and depth of Fed rate cuts, with futures now discounting fewer than two cuts across the whole of 2026 after pricing a much more dovish path only a few months ago. That repricing of the US curve underpins the dollar side of USD/JPY, making it difficult for the yen to benefit from BoJ tightening.

DXY Around 98.75: Dollar Strength With Split Positioning

The broad dollar index has recovered from its post-CPI lows and is pressing toward resistance near 98.75. Short-term flows and pre-holiday position squaring are clearly playing a role, but there is also a deeper narrative of sticky core inflation and elevated inflation expectations that justifies firmer US yields. One group of investors sees this as the beginning of another leg higher in the dollar going into early 2026; another still expects the index to fade to new lows once the current adjustment is complete. For USD/JPY, the implications are straightforward. A clean break above the 98.75 resistance band in DXY increases the probability that the pair will re-test and potentially exceed the upper technical targets, while a failure there and a reversal lower in the index would give the yen its first genuine opportunity to regain ground.

Japanese Yields At 2.018%: A New Regime That Still Lags The US

Japan’s bond market confirms that the BoJ has changed regime, even if FX traders are not rewarding the yen yet. Ten-year Japanese government bond yields have moved to around 2.018%, a roughly 20-year high and about 5.7 basis points above the previous close. That shift reflects both reduced direct yield-curve control and higher market-based risk premia. However, when placed next to US yields, Japanese paper remains relatively unattractive. The US still offers higher nominal and often higher real yields across much of the curve. The net result is that global fixed-income allocators see JGBs as less distorted than before but still as a lower-yielding alternative. For USD/JPY, that means the upward pressure from the rate gap is reduced slightly but remains clearly in favor of the dollar.

BoJ Communication, Wage Dynamics And Policy Path For The Yen

The BoJ has framed its move as part of a gradual, data-dependent process rather than the start of an aggressive hiking cycle. Governor Kazuo Ueda has highlighted wage momentum for the coming year as the key trigger for further hikes, stressing that the central bank will respond to sustainable wage-price dynamics rather than one-off price spikes. At the same time, the Japanese government is deploying a sizeable fiscal package to support domestic demand, which risks locking in a higher inflation floor. The combination of cautious monetary tightening and expansionary fiscal policy is unusual. For USD/JPY, it suggests that while Japanese rates may grind higher over time, they are unlikely to close the gap to the US quickly enough to reverse the established FX trend on their own.

USD/JPY Technical Structure: Bullish Bias Above Long Averages

From a technical standpoint, USD/JPY remains in a broadly bullish configuration despite periodic corrections. The pair is consolidating within a wide range, but price action still sits above the 50-, 100- and 200-day moving averages, signaling that the long-term uptrend has not been broken. The recent spike following the BoJ hike pushed the pair to a one-month high, confirming that buyers remain in control whenever the market is offered attractive entry levels. Pullbacks have consistently produced higher lows rather than deep trend reversals, which is typical behavior in a strong, yield-driven FX move.

Key Resistance Zones: 157.80 And 161.50 As The Upside Map

On the upside, the market has defined clear resistance zones for USD/JPY. The first barrier sits around ¥157.80, where intraday rallies have stalled and where sellers are currently active. A daily close above that zone would be the first confirmation that buyers are willing to pay up and re-accelerate the trend. Beyond that, the next decisive level is near ¥161.50, a historically significant peak that marks the top of the previous impulsive leg. A break and sustained close through 161.50 would effectively signal that the bull trend has re-asserted itself and that the pair is capable of exploring new cycle highs as long as the Fed–BoJ rate gap remains wide.

Key Support Zones: 154.50 And 151 As The Line Between Pullback And Reversal

On the downside, the first serious support sits near ¥154.50. That level has acted as a local floor and a reference point for dip-buyers; losing it would indicate that short-term momentum has shifted and that the market is no longer comfortable buying every setback. Below there, the next critical zone lies around ¥151, which aligns with a structural pivot on the chart and the region of the 100-day moving average. A decisive break under 151, especially if accompanied by rising yen demand and softer US yields, would be the first credible technical signal that the multi-month bullish structure in USD/JPY is at risk rather than simply consolidating.

Momentum Signals: MACD, RSI And The Absence Of Bearish Divergence

Momentum indicators reinforce the bullish bias. MACD has begun to recover its positive slope after a period of consolidation, and RSI is recovering from neutral territory without printing clear bearish divergences on the daily timeframe. That combination – trend above long moving averages, recovering momentum and no divergence – is exactly what systematic trend followers look for when they maintain or add to long positions rather than trying to anticipate a top. As long as these conditions persist, the path of least resistance in USD/JPY remains upward, with pullbacks seen as opportunities rather than signals to abandon the trade.

Volatility, Liquidity And Flash-Crash Risk Around Year-End

Seasonal liquidity conditions add an additional layer of risk for anyone trading USD/JPY aggressively. Year-end books are lighter, dealers reduce inventories, and resting liquidity on both sides of the market tends to thin out. The January 2019 flash crash in the pair remains a clear reminder that sharp, sudden gaps can occur when a burst of order flow hits a shallow market. With implied volatility still relatively contained compared to earlier crisis periods, there is an argument for expressing directional views through options rather than naked leveraged spot positions. Using defined-risk call structures to stay long the dollar against the yen, or limited-risk puts for traders who expect a reversal, reduces the chance that an air-pocket move around a holiday session wipes out capital.

Higher-For-Longer In The US Versus Slow Normalisation In Japan

The core macro driver for USD/JPY remains policy divergence. In the US, one-year inflation expectations at 4.2%, sticky core inflation and resilient labor data keep the Fed locked into a higher-for-longer posture, with fewer cuts priced and real yields still positive. In Japan, the BoJ has only just moved to 0.75% after decades near zero and is signaling incrementalism rather than a rapid normalization. That gap sustains the carry trade, keeps international capital flowing toward the dollar, and positions the yen as a continued funding currency. Until that relative story changes – either through a sharper tightening cycle in Japan or a much more aggressive easing pivot in the US – the structural bias in USD/JPY favors staying bullish rather than betting on a lasting yen recovery.

Risk Sentiment, Safe Havens And The Yen’s Changed Role

Global risk sentiment further undermines the yen’s traditional safe-haven function. Gold has traded near record territory around $4,350, silver has pushed toward the high-$60s, and Bitcoin has remained above $88,000 after volatile swings, showing that investors are clearly hedging macro and inflation risks. Yet the yen has not benefitted in the same way; flows have favored dollar cash, US short-duration paper and hard assets over JPY. The result is that the old pattern – equity shock, yen spike, USD/JPY collapse – is weaker than in previous cycles. The currency’s long history as a cheap funding vehicle and the BoJ’s delayed normalization have eroded its haven premium, leaving it more sensitive to rate spreads than to risk-off episodes.

Short-Term USD/JPY Trading Map And Strategic Stance

In the immediate horizon, USD/JPY is effectively trading a band defined by ¥154.50 on the downside and ¥161.50 on the upside, with spot currently biased toward the upper half. As long as price holds above support and the Fed side of the story remains one of delayed cuts and elevated real yields, the strategy with the strongest macro and technical backing is to treat dips as opportunities to re-enter or add to long exposure rather than to call a top prematurely. A decisive break above 157.80 would strengthen the case for a run toward 161.50. Only if the pair loses 151 with conviction – ideally accompanied by a clear shift in Fed guidance or an acceleration of BoJ tightening – would the balance of evidence tilt toward a medium-term bearish stance on USD/JPY rather than a continuation of the existing uptrend.

That's TradingNEWS