USD/JPY Price Forecast - Yen to Dollar Slides to 156.10 as Yen Strengthens on Fed Cut Expectations

USD/JPY Price Analysis: Yen Strength Returns as Rate Cut Bets and Technical Weakness Hit the Dollar

The USD/JPY pair is trading near 156.10, declining for a fifth straight session as the yen regains strength amid growing expectations of a Federal Reserve rate cut at the December 11 FOMC meeting. The move marks the first sustained pullback since early October, when the pair surged to a 2025 peak of 158.21. Selling pressure intensified this week as U.S. yields fell below the critical 4.00% level on the 10-year Treasury, eroding the dollar’s yield advantage. The CME FedWatch Tool now shows an 86.9% probability of a rate cut to 3.75%, a shift that has driven traders to unwind long-dollar positions, providing renewed momentum for the yen.

Rate Cut Expectations Shift Market Dynamics and Undermine Dollar Momentum

Recent U.S. macro data reinforced the view that monetary tightening is ending. Core PPI rose only 0.1% versus the 0.2% forecast, while retail sales stagnated at 0.2%, well below the 0.4% consensus. These numbers signal fading inflation and slowing consumer activity, key catalysts that have pushed markets to price in a dovish Fed path. The DXY Index slid to 99.08, down from the 100.22 November resistance zone, showing the broad dollar weakening. Despite the Fed’s ongoing caution in communication, traders have begun positioning for easing, compressing the U.S.-Japan yield differential that had supported USD/JPY throughout Q4.

BOJ Policy Outlook: Ueda Speech Looms Over Short-Term Yen Direction

Attention in Japan now centers on the upcoming Bank of Japan Governor Kazuo Ueda speech, which may provide forward guidance on rate normalization. After Tokyo’s core CPI came in hotter than expected, at 2.8% YoY, speculation grew that the BOJ could raise rates by 25 basis points in December, its first move since 2007. Current JGB auction yields remain elevated, with the 10-year yield holding above 0.95%, signaling persistent market pressure for policy adjustment. Should Ueda hint at further tightening, yen strength could accelerate sharply, possibly driving USD/JPY toward the 153.00–153.30 support range, its key equilibrium level for the quarter.

U.S. Data Calendar: PMIs, Labor Market, and Core PCE Set to Drive Volatility

The upcoming U.S. calendar is loaded with data releases that could intensify volatility. Manufacturing and Services PMIs on Monday and Wednesday, Challenger layoffs, and weekly jobless claims on Thursday will shape the near-term policy outlook. On Friday, the core PCE deflator, the Fed’s preferred inflation metric, will likely determine the tone for rate expectations ahead of the December meeting. Historically, USD/JPY exhibits heightened sensitivity to labor and inflation prints, with intraday swings often exceeding 1.2% when data surprises deviate from consensus. If inflation cools further, traders could push yields even lower, reinforcing yen demand.

Technical Breakdown: Neutral Bias Builds as RSI and MACD Turn Lower

The USD/JPY daily chart shows a clear loss of upward momentum. After months of near-vertical gains, the pair finally breached its October uptrend line last Friday, breaking below the ascending channel that defined the Q4 rally. Momentum oscillators confirm the shift: the RSI (14) fell from 72 to 54, exiting overbought territory, while MACD histogram has flattened near zero, indicating a weakening bullish impulse. Price is now testing a dense support cluster between 155.73 and 155.00, with additional downside levels at 153.68 and 153.00. Resistance is capped at 157.90, followed by the yearly high of 158.21, which remains the technical trigger for any renewed bullish breakout.

Yen Sentiment and Global Yield Dynamics

The yen’s rebound is driven not just by U.S. rate expectations but also by global yield convergence. The U.S.-Japan 10-year yield spread has narrowed by nearly 35 basis points in two weeks, its steepest compression since July. Japanese investors have scaled back Treasury purchases amid uncertainty over the Fed’s 2025 guidance. Meanwhile, the BOJ’s yield curve control (YCC) policy continues to evolve, with reports suggesting internal debate about removing its 1.0% ceiling cap. This shift, paired with stronger inflation data, has made the yen more reactive to small changes in global yield dynamics, reversing the asymmetry that previously favored the dollar.

Institutional Positioning and Market Psychology

CFTC data confirms a softening of the dollar’s dominance. Net speculative longs in USD/JPY futures dropped by 11,600 contracts, their first meaningful decline since August. Institutional traders have begun reallocating toward yen exposure, particularly in short-duration trades, to hedge against potential Fed easing. Conversely, Japanese corporates remain active dollar buyers for fiscal hedging, creating a floor near 154.50, where options open interest is heavily concentrated. This dual dynamic—macro bearishness versus corporate demand—explains the pair’s choppy price action over the past week.

Risk Sentiment and FOMC Blackout Window

With the Fed blackout period now in effect, macro sentiment is steering USD/JPY. Historically, the pair tends to strengthen ahead of FOMC meetings as investors square short-dollar positions, but this time, the macro tone appears different. Market confidence in imminent rate cuts has undermined the typical pre-FOMC rally pattern observed since 2023. The Fed funds futures curve now prices nearly 88 basis points of cumulative cuts by end-2026. Any deviation from this expectation could cause abrupt reversals, especially if December data proves resilient.

Technical Outlook and Strategic Zones

USD/JPY currently trades between 156.00 and 156.30, holding just above its short-term support. A daily close below 155.00 would confirm a deeper correction toward 153.30, where the 50-day moving average resides. On the upside, only a break and hold above 157.90 would reassert bullish control and reopen the path toward 158.88. Volatility remains elevated, with the Average True Range (ATR) climbing to 1.45, suggesting wide trading bands through early December. Traders should monitor the reaction around 154.45–155.00, a key confluence zone from prior resistance in October that could now act as support.

Macro Context and Market Implications

The broader macro narrative behind USD/JPY remains tightly linked to diverging monetary trajectories. Japan’s inflation and bond market behavior indicate that the era of ultra-loose policy is fading, while the U.S. heads toward its first easing cycle since 2020. This alignment compresses spreads, reduces the dollar carry advantage, and encourages capital rotation back into yen-denominated assets. Should the Fed confirm its dovish pivot in December, USD/JPY could retest 153.00, its mid-term equilibrium, with a possible overshoot toward 151.80 if momentum accelerates.

Verdict: Hold Bias — Tactical Short Positions Favored Below 157.00, With Medium-Term Target at 153.00
The structural tone for USD/JPY has shifted from aggressively bullish to balanced. Technical deterioration, narrowing yield differentials, and policy convergence between the Fed and BOJ support a neutral-to-bearish stance through December. Traders may consider short entries near resistance zones with tight stops above 158.20, aiming for profit zones between 153.30–153.00 as rate expectations crystallize.

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