USD/JPY. Analysis and Forecast

[Ben Graham]

Today, the pair showed a strong bullish impulse, breaking through two round levels at 156.00 and 157.00, as well as resistance at 157.20.

The yen extended its intraday losses after opening remarks by Bank of Japan Governor Kazuo Ueda at the press conference following the policy meeting. At the conclusion of the two-day meeting on Friday, the Bank of Japan decided to raise the short-term policy rate by 25 basis points to 0.75%, reaching a level considered the highest in three decades. This move had largely been priced in by the markets and did not trigger sharp fluctuations in the yen. In its accompanying statement, the Bank of Japan said it would continue to raise interest rates provided that prices and economic conditions evolve in line with its forecasts.

Central bank officials emphasized that the likelihood of the baseline scenario being realized has increased, but they offered no specific guidance on future policy steps. At the press conference, Governor Ueda noted that Japan's economy is showing moderate stability, though certain weaknesses remain. He added that the regulator will closely monitor the effects of the latest rate hike, and that the pace of monetary policy actions will depend on economic, price, and financial indicators.

Earlier today, Japan's Statistics Bureau reported that the year-on-year consumer price index rose by 2.9% in November, slightly slowing from 3.0% in the previous month. Additional data showed that core CPI, which excludes volatile fresh food prices, remained at 3.0%, in line with market expectations. Meanwhile, the core index excluding both energy and fresh food prices eased from 3.1% to 3.0% in November. Despite this, inflation in the country remains stable and well above the Bank of Japan's 2% target. At the same time, proponents of a stronger yen remain cautious and are waiting for additional signals that the Bank of Japan is ready to further tighten policy. In this context, Ueda's comments will play an important role, as they could significantly influence yen dynamics.

Developments in Japanese government bonds—issued by a country whose debt exceeds 250% of GDP, a record level—continue to unsettle markets and fuel concerns about the state of the nation's finances amid Prime Minister Sanae Takaichi's large-scale spending plans. This situation is likely to further weaken the yen.

From the United States, the Bureau of Labor Statistics reported that in November the inflation index rose by 2.7% year-on-year, slightly below the forecast of 3.1%. Core CPI, excluding food and energy prices, increased by 2.6%, also missing expectations. The data point to a possible slowdown in inflationary pressures, making the prospect of Federal Reserve rate cuts more realistic. Traders are pricing in rate cuts totaling 63 basis points in 2026. U.S. President Donald Trump has noted that the next Fed chair will be a candidate willing to support significant rate cuts.

This divergence in the monetary policies of the two countries should at least help slow the yen's decline.

From a technical perspective, as prices have surged through the round levels of 156.00 and 157.00 and resistance at 157.20, approaching the next resistance at 157.50, while daily chart oscillators remain positive and far from overbought territory, there is a very high probability that prices will reach the round 158.00 level in the near future.

The material has been provided by InstaForex Company - www.instaforex.com