The USD/JPY pair is currently positioned within the 155.0–155.5 range, reflecting a decline of approximately 0.3–0.5% for the day, following its inability to maintain the upward movement towards 158.0 observed in late November. The pair declined to an intraday low close to 154.8 and is currently positioned just below the 21-day simple moving average at approximately 156.0, which is serving as short-term resistance and limiting any efforts to advance further. On the downside, immediate support is positioned within the 154.2–154.0 range, bolstered by the 50-day moving average; a decisive breach in this area would open the door to the 153.0 psychological level, followed by the 100-day region near 151.0. Momentum indicators indicate a stall: The RSI on the daily chart has retraced toward the 50 line, and the MACD is positioned below its signal line with a widening negative histogram, suggesting that upward momentum is diminishing rather than gaining strength. fxempire.com+1
The catalyst for the yen’s recovery is the transition in Japan’s interest rate framework. The Bank of Japan is anticipated to increase its policy rate by 25 basis points to 0.75% during the meeting on December 18–19, marking the highest level since the mid-1990s and the first adjustment following the previous 0.50% increase. Approximately 90% of economists surveyed anticipate that increase, and market pricing suggests a total tightening of around 67–75 basis points by the end of 2026, bringing policy near 1.0% if the economy accommodates each increment. Simultaneously, Japan’s 10-year government bond yield has increased to approximately 1.9–2.0%, rising from around 1.1% at the beginning of 2025, reflecting an 80–90 basis point increase in under a year. This represents a fundamental shift for a market that has been constrained by explicit yield-curve control for the past ten years. The crucial aspect for USD/JPY is that the rate gap has evolved from a one-sided narrative: Japan is gradually tightening its policy in a context where the Fed has commenced cuts, thereby narrowing the interest-rate differential that has supported the carry trade for an extended period.
The upcoming directional shift in USD/JPY is expected to extend beyond the confines of FX screens. Japanese equities continue to exhibit a strong correlation with fluctuations in the yen. The Nikkei 225 experienced gains due to a weaker yen, which allowed exporters to enjoy increased margins from their overseas earnings. However, a continued movement in USD/JPY from the present 155–156 range down to 145 or even 140 could diminish this foreign exchange advantage and negatively impact earnings forecasts. In August, global risk assets demonstrated the rapid propagation of a yen-driven shock, evidenced by the S&P 500’s approximately 6% decline over three days and the VIX surge to the mid-60s, highlighting the significance of carry flows in bolstering risk. Emerging markets occupy a significant portion of those positions. In a recent month, emerging market portfolios experienced inflows totaling approximately $45 billion, with $41.5 billion allocated to debt instruments and merely $3.3 billion directed towards equities. Additionally, emerging market stocks outside of China faced outflows nearing $7.4 billion. The current composition indicates that investors are beginning to adopt a more defensive stance. A chaotic decline in USD/JPY, driven by the unwinding of yen shorts, could potentially intensify selling in emerging market equities and currencies, particularly in high-yielders such as MXN and BRL, which have been favored for carry trades. Cryptocurrency represents the most volatile manifestation of this liquidity. Bitcoin has transitioned from highs exceeding $100,000 to the low-$90,000 range. Historical stress episodes indicate that a 15% decline in BTC can lead to approximately $4 billion in forced liquidations, resulting in cascading margin calls. When yen funding tightens and USD/JPY declines, those highly leveraged structures exacerbate the impact instead of mitigating it.
In the short term, USD/JPY is confined within well-defined boundaries as market participants await signals from central banks and economic data. On the upper side, the initial resistance level is at 156.00, followed by 157.00, and ultimately the 158.00 peak that halted the previous upward movement. A combination of a softer Bank of Japan message and stronger US data that drives prices into that range will encounter existing supply from macro desks that are already increasing their short-USD/JPY positions. On the downside, the initial test is whether 155.00 maintains on a closing basis; if it falls below that, the 154.20–154.00 range becomes the first significant demand area, followed by the broader structural support zone near 153.50, which daily and intraday charts indicate as essential. A daily close beneath 153.50 would indicate that the multi-month uptrend has transitioned into a medium-term downcycle, paving the way toward 151.00 and potentially the significant 150.00 level where authorities have historically demonstrated sensitivity. As long as the 158.00 resistance and the 153.50 support hold firm, range trading continues to prevail. Moves towards the 156.0–157.0 area are more appropriate for distribution rather than initiating new long positions, while brief declines into the low-154s present tactical mean-reversion chances for quick gains.