The increase in wholesale inflation in Japan has strengthened the case for rate hikes by the Bank of Japan to 1.5% in December. The USDJPY gained 0.76% last week to reach near the 160 level as expectations for the Fed rate hike in December remain high. The strong inflation data in the US has improved the outlook for further rate hikes which keeps the US dollar strong. The GDP and inflation data for Japan will be released this week and can change the expectations for future hikes. These expectations may drive the next move for yen against the dollar, euro and pound.
Japan Interest Rate Forecast as Markets Bet on a December Hike
The Bank of Japan left the interest rates unchanged at 1.25% in October. The chart below shows that the wholesale inflation in Japan has increased to 7.1% from 6.8% in September. This is above the forecast of 6.5%.
The prices for imports have increased to 24.8% from the previous year. The cost of imports may influence inflation as businesses pass costs to consumers. These conditions suggest that BoJ may increase interest rates in December.
Japan will release the GDP data on 16 November and inflation data for October on 20 November. The market expects annualized growth of 0.3% which is down from 1.4% in Q2. The expectations for core inflation are 2.3% which is up from 2.1% in September. These expectations also support the rate hike in December. If the GDP data suggest slowdown and inflation is softer, it would give the BOJ room to wait. If inflation is hotter than expected, it will increase the expectation of rate hikes in 2027.
Inflation in the US is also high which is keeping pressure on the Fed to raise interest rates. The chart below shows that consumer prices increased by 0.35% in October while core prices increased by 0.3%.
Producer inflation increased by 0.3% in October but it was 6.5% a year earlier.
The 2-year Treasury yields surged higher last week after the release of inflation data, and 10-year Treasury yields have again moved above the 5% level. The high inflation environment in the US keeps expectations for further hikes at the next meeting. The rate hikes by the Fed and BoJ will likely keep rate gap wide between the US and Japan.
USD/JPY Price Forecast
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See all USD/JPY forecastsUSD/JPY Forecast as Rising Treasury Yields Drive a Test of 160
The finance minister of Japan said that Tokyo is ready to act against the excessive movements in currency. USDJPY reached the key level of 160 on Friday and is consolidating below this level. The US dollar remains strong as the market expects Fed to raise interest rates. The continued rally in US dollar and US Treasury yields may push the pair above the key level of 160. But if the inflation data in Japan is hot, it may pull USDJPY lower as it increases expectations of rate hikes in 2027.
USD/JPY Weekly Support at 154–155
The weekly chart for USD/JPY shows that the pair is trading within the ascending broadening wedge pattern after forming the low in April 2025. The formation of the broadening wedge suggests that volatility is high.
The key resistance for the pair is 160 and a break above this level will likely open the way for further upside. The strong support remains in the range of 154-155 which is defined by the lower boundary of the ascending broadening wedge. A break below 154 will likely open the way for further downside towards 152 which marks the low of January 2026.
USD/JPY Upside Targets at 165 and 175
The daily chart for USD/JPY shows that the recovery from key support zone around 152.50 in September 2026 was constructive. The consolidation in October also strengthened price action. This price action has pushed the pair towards the key level of 160.
A break above this level may open the way for further upside in the pair towards 165 and higher. The RSI also remains above the midline which suggests a positive trend. The price has already broken above the 50- and 200-day SMAs which shows that positive momentum is building.
The chart below shows the formation of ascending channel pattern from the lows of January 2023. This channel suggests that the breakout from the range of 160-162 may open the way for strong rally to 175.
EUR/JPY Forecast as Euro Weakness Puts 174.50 Support in Focus
The growth in Europe has slowed down to 0.4% in Q3 from 0.6% in Q2. The market expects the ECB to raise the deposit rate in December. If the ECB and BOJ hike by 25 basis points, the policy gap between the rates will remain at 1.25%. If inflation in Japan is hot, the pair may drop as it will increase expectations for further rate hikes in 2027.
EUR/JPY remains in a negative trend in the short term despite positive development in USD/JPY. This is due to the strength of the U.S. dollar index which is putting pressure on the euro. The negative momentum in the euro has kept EUR/JPY in downtrend despite the weaker Japanese yen. The pair has broken below the key 180 level and moved towards the key support area between 174.50 and 175.50.
The price continues to drop after the slight rebound in the first week of November near the 50-day SMA. The RSI also remains below the midline which suggests further downside in the short term.
The importance of the current support is also visible on the weekly chart. The highs of July 2024 define the support at 174.50. A confirmed break below 174.50 will likely open the way for further downside towards the 156 area.
GBP/JPY Forecast as UK Inflation Shapes Bank of England Rate Bets
UK growth increased to 0.7% in Q3 after the Bank of England increased the policy rate to 4% this month. The market is now waiting for UK inflation which may shift expectations for interest rates. The soft inflation data may weaken the GBPJPY, while strong inflation may push the pair higher.
GBP/JPY also remains between the 50- and 200-day SMAs within the 210 and 213.50 levels. The descending trendline from the highs of July 2026 also defines resistance at 213.50. A confirmed break above 213.50 will likely open way for further upside towards 217.50.
But the pair is trading within the ascending channel pattern that stretches from the lows of September 2026. A break below this ascending channel at 210 in the pair will likely push the pair towards key support at 207. A confirmed break below 207 in GBPJPY may open the way for further downside towards the 200 area.
What to Watch for BOJ Rates and the Yen This Week
The Bank of Japan may increase interest rates to 1.50% in December. The GDP and inflation data will be released this week which may change these expectations. The weak growth and soft inflation figures may provide the BOJ some room to wait. But the hot inflation data may increase the expectations for further hikes in 2027.
The interest rate gap between the US and Japan may remain wide if the Fed and BOJ may increase rates by 25 basis points. The positive momentum in the US Treasury yields may support the USD/JPY to break above the resistance zone of 160-162 and move towards 165 and then 175.
A break below 174.50 may push the EUR/JPY further down towards 172.50. On the other hand, the break below 210 in GBPJPY may push the pair toward the key support of 207.
Read more: Fed Hike Bets Lift USD/JPY Toward 160