The USD/JPY rate is currently positioned between 156.9 and 157.3, reflecting an increase of approximately 0.8 to 1.3% for the day, despite the Bank of Japan implementing its most significant tightening measure in thirty years. The yen experienced aggressive selling rather than strengthening, resulting in USD/JPY rising from the mid-154s earlier in the week to new highs just below 157. The shift is intensified by a strong US Dollar, with the Dollar Index around 98.65, and by the reality that the rate hike was entirely anticipated prior to the meeting, resulting in positioning tilted towards a “sell yen on soft guidance” scenario once the statement was released. On short-term charts, USD/JPY has transitioned from a period of erratic consolidation into a distinct and strong rally, surpassing a short descending trendline that previously limited advances in early December.
The price is currently maintaining a position well above the 50- and 100-period EMAs, which are grouped around the 155.75–155.66 range. The candles observed on the two-hour and four-hour charts exhibit robust bodies accompanied by relatively minor upper wicks, indicating a pattern of disciplined buying instead of signs of blow-off exhaustion. The initial zone of intraday resistance is located around 156.90–157.00, with potential upside targets at approximately 157.88 and subsequently 158.60, assuming momentum continues. Meanwhile, the previous resistance level at 156.13 has now transitioned into the primary significant support level. The Bank of Japan has increased its short-term policy rate from 0.50% to 0.75%, marking the highest level since 1995 and representing the first adjustment in nearly a year. Policymakers characterized the action as a reaction to inflation exceeding the 2% target for almost four years and strong wage agreements, while also highlighting that overall financial conditions remain supportive. Real interest rates continue to be negative, and the board reiterated that future actions will be gradual and entirely reliant on data. Two members expressed reservations regarding the price outlook while still supporting the hike, which further diminished the perceived hawkish stance and led to yen depreciation instead of appreciation.
Recent data indicate that Japan’s national CPI stands at approximately 2.9% year-on-year for November, while the core CPI is close to 3.0%, maintaining price growth above the BoJ’s target. In the United States, headline CPI decelerated to approximately 2.7% year-on-year, while core CPI moderated to around 2.6%, with monthly increases at 0.2%. Although the inflation gap between Japan and the US has narrowed, nominal and real yield differentials continue to favor the dollar, as Japanese interest rates remain significantly lower. This yield divergence sustains the favorable carry dynamics supporting USD/JPY despite moderating US inflation.
Anticipated policy developments extending into 2026 are likely to provide ongoing support for USD/JPY overall, as the Federal Reserve retains greater flexibility while the BoJ proceeds cautiously. Japanese ten-year yields remain close to 2%, far below US Treasury yields, reinforcing dollar strength. Cross-section price action confirms widespread yen weakness, with losses recorded across major currencies, indicating a broad reassessment of the yen following the BoJ meeting. On the daily chart, USD/JPY continues to trend higher from the April low near 139.90, with the recent breakout signaling renewed buyer control and positioning the pair toward the year-to-date high near 157.82 and potentially the 160.00 level if momentum persists.