The USD/JPY pair is currently positioned between 156.0 and 156.2, reflecting a decline of approximately 0.3% for the day following the recent Bank of Japan Summary of Opinions. The price has fallen below the nine-day EMA at approximately 156.19 and is currently positioned just above the initial support cluster in the range of 155.96–156.00. During the intraday session, the pair surged to approximately 156.49 before retreating to around 156.06, indicating that sellers are capitalizing on each advance into the mid-156s to reduce long positions established following the recent BoJ rate increase to 0.75%. The recent shift indicates that the market is beginning to acknowledge the potential for Japanese rates to increase, while the US curve trends toward reductions. This dynamic is narrowing the rate differential that has underpinned the prolonged bullish trend in USD/JPY. The December decision to raise the policy rate to 0.75% serves as the foundation for the ongoing repricing in USD/JPY. Numerous policymakers have pointed out that Japan’s real policy rate remains the lowest in the world, significantly beneath any plausible assessment of neutrality. The Summary of Opinions highlights the necessity to “steadily” increase rates to prevent lagging behind the curve. Some members contend that keeping real rates significantly below equilibrium disrupts capital allocation and jeopardizes sustainable growth. The message is unequivocal: despite the increase to 0.75%, the BoJ does not consider itself to be in a restrictive position. The structural implications for USD/JPY are unfavorable, as each incremental increase in the neutral rate diminishes the historically significant yield advantage of the US dollar relative to the yen.
Underlying sentiments within the BoJ have shifted towards a more hawkish stance, yet this shift is not without careful consideration. On the hawkish side, perspectives emphasize that corporate profits are holding strong, wage growth is anticipated to persist, and real wages are forecasted to become positive in the first half of next year. Inflation is anticipated to moderate briefly before re-accelerating, aligning with the pattern that supports additional normalization efforts. Several members contend that increasing rates by 25 basis points continues to maintain a highly accommodative policy stance, and that the persistence of deeply negative real rates is no longer warranted. Simultaneously, there are evidently prudent perspectives being expressed. Certain members emphasize the importance of evaluating how increased nominal yields affect the real economy and financial markets, refraining from committing to a predetermined rate of hikes, and allowing macroeconomic data to guide each decision. Government representatives highlight a stimulus package anticipated to bolster growth over the next one to two years, providing the central bank with greater flexibility to adjust policy toward neutrality without stifling economic activity. For USD/JPY, that combination – gradual but persistent tightening from 0.75% upward, with fiscal support cushioning growth – presents a medium-term challenge, even if the trajectory remains inconsistent.
The sentiment regarding USD/JPY is beginning to move in the opposite direction on the US side. Core PCE has cooled to approximately 2.5%, and the market currently reflects a significant likelihood of an initial Fed cut in March, with the implied odds increasing from around 53.3% to 54.8% within just a few days. Additionally, there is ongoing speculation regarding a new Federal Reserve Chair who may favor a more accommodative approach, thereby strengthening expectations for a cutting cycle in 2026. Upcoming data, including the Dallas Fed Manufacturing Index, which is expected to rise from approximately –10.4 to about –2.5, will influence the pace at which the market adopts a dovish perspective. A weaker-than-anticipated report would highlight the diminishing momentum in US economic activity and put pressure on the dollar. The combination of a BoJ that is openly contemplating several future rate hikes and a Fed that is moving closer to cuts exemplifies classic rate-differential compression. Given the reliance on the carry trade between US and Japanese yields, this situation presents a bearish outlook for USD/JPY in the longer term.
From a technical perspective, USD/JPY continues to exhibit legacy bullish signals; however, the underlying structure is beginning to show signs of deterioration. On the daily chart, the 50-day EMA is on an upward trajectory and is positioned just beneath the price, around the mid-154s (approximately 154.7), while the 200-day EMA is situated lower, creating a classic uptrend configuration. The nine-day EMA at approximately 156.19 has stabilized, with the price fluctuating around this level, indicating a phase of near-term consolidation instead of a definitive breakout. The 14-day RSI has retreated to 52.8 from overbought levels, indicating a neutral stance that suggests diminishing upward momentum, though it does not yet signal a complete bearish trend. Resistance levels are clearly established above the current price: the initial hurdle is the early-December high at 156.95, succeeded by the December 22 high close to 157.70 and the November 20 peak approximately at 157.89. An independent assessment indicates the 11-month peak at 157.90, with a potential extension target near 158.88, marking the highest point since July 2024. On the downside, initial support is positioned around the recent lows at 155.96 and the short-term uptrend line close to 155.10. A more significant pullback would reveal the range between 155.44 and 154.72, where the 50-day EMA is located. A consistent daily close beneath the 50-day EMA would represent the initial clear technical indication that the multi-month uptrend in USD/JPY is at risk and that markets are beginning to factor in a real shift in policy regime.
Authorities have designated the 157–160 range as a practical intervention zone for USD/JPY. Following the Bank of Japan’s decision to raise rates to 0.75%, the currency pair experienced an initial surge into that range, but subsequently retraced as concerns regarding unilateral movements and excessive yen depreciation reemerged. Even if US data or a temporary pullback in BoJ hawkishness provides the dollar with a short-term advantage, positioning above 157 swiftly encounters the risk of official intervention. In practical terms, the 157–158.5 range acts as a significant barrier for USD/JPY, while the downside appears much more accessible if the current trajectory of policy and data persists. In the short term, USD/JPY is confined within a narrow yet volatile range, with support at 155.96 and 155.10 representing the critical levels that bulls must protect to maintain the current uptrend. The nine-day EMA at 156.19 serves as the initial intraday pivot, while the range of 156.95–157.90 continues to represent a significant multi-week resistance zone. With implied volatility elevated, positioning favors strategies anticipating a headline-driven move. The underlying narrative remains straightforward: as the BoJ tightens and the Fed eases, the rate differential compresses. A medium-term return to 150 appears feasible, with potential extension to 140 over six to twelve months. The risk assessment for USD/JPY therefore leans bearish, with sell-on-strength strategies favored in the 156.9–157.7 range, targeting 150 initially and 140 on an extended horizon, while a sustained daily close above 158.5 would invalidate this outlook.