Japanese Yen Weekly Forecast: Will USD/JPY Hit 160 on BoJ and Fed Policy Moves?

USD/JPY Rebounds: How Far Can the Yen Slide if the BoJ Delays Rate Hikes

Here’s what traders need to know.

The USD/JPY pair had an impressive week, rallying 2.41% to close the week ending December 13 at 153.579. A five-day winning streak drove the pair to a Friday high of 153.797 before easing back.

Markets tempered bets on a December Bank of Japan rate hike. Additionally, investors raised expectations for a hawkish December Fed rate cut. Sentiment toward central bank policy outlooks could lead to a wider-than-expected US-Japan interest rate differential, influencing price trends.

Japan Services PMI: A Key Indicator for BoJ Policy

On Monday, December 16, the all-important Jibun Bank Services PMI may sway sentiment toward this week’s BoJ monetary policy decision. Economists forecast the Services PMI to increase from 50.5 in November to 51.4 in December.

Accounting for over 70% of Japan’s GDP, a stronger reading could raise expectations of a BoJ rate hike. However, investors must also consider input and output price trends. Rising input prices may indicate increasing wages and higher inflation, supporting a rate hike.

Bank of Japan Governor Kazuo Ueda recently remarked on the significance of services sector price trends, saying,

“October is a month when service price revisions are concentrated in Japan, so we must scrutinize data carefully.”

Trade Data, Global Demand, and Import Prices

On Wednesday, December 18, trade data from Japan could give insights into the global demand environment. Economists expected imports to increase 1.0% year-on-year in November, up from 0.4% in October. However, economists predict exports to rise at a slower pace year-on-year.

The projections suggest improving domestic demand but waning overseas demand for Japanese goods. With a trade-to-GDP ratio of around 35%, weaker exports could affect Q4 GDP numbers.

However, import trends may draw more interest because of Japan’s sensitivity to global trade terms and import price shifts. The BoJ previously warned of rate adjustments to counter higher import prices affecting living costs and private consumption.

Bank of Japan Interest Rate Decision: What’s Next?

The Bank of Japan will be in the spotlight on Thursday, December 19, delivering its highly anticipated interest rate decision. Investor bets on a BoJ rate hike have eased in recent sessions. However, the possibility of a BoJ surprise rate hike remains.

An unexpected 25-basis point BoJ rate hike could fuel another carry trade unwind, potentially sending the USD/JPY toward 140. Conversely, the USD/JPY may move toward 160 if the BoJ holds rates at 25 basis points and offers no guidance for Q1 2025.

Inflation Data and the January Outlook

On Friday, December 20, Japan’s national inflation figures will require consideration. Economists expect the core inflation rate to rise from 2.3% in October to 2.6% in November, well above the BoJ’s 2% target.

Higher inflation would likely fuel bets on a January BoJ rate hike, assuming the Bank stands pat on Thursday. Conversely, softer inflation could sink expectations of a January hike, dampening Japanese Yen demand.

Potential Outcomes for USD/JPY

While Japan’s economic data will influence USD/JPY price trends, the BoJ policy decision will be crucial. Possible BoJ policy decisions and USD/JPY moves could include:

• If the BoJ signals a January hike, USD/JPY could dip below 150.
• An unexpected December hike could drive the pair toward 140.
• A data-dependent January outlook may push USD/JPY near 157.
• A cautious stance could lead to a rally toward 160.

Expert Views on the Bank of Japan Rate Path

Global Markets Invest commented on wholesale inflation and the BoJ rate path outlook, saying,

“Inflation in Japan’s corporate goods prices jumped to 3.7%, the highest in 16 months and above expectations of 3.4%. Bank of Japan’s interest rate decision comes next week on December 19. The BoJ has hiked rates twice so far this year, and the market is pricing in an over 30% chance of another hike next week and a 90% probability of a raise by the end of March.”

If the BoJ stands pat, investors should look for shifts in sentiment regarding a Q1 rate hike for potential USD/JPY trends.

US Data and the Fed: Will The Fed Signal a One and Done Rate Cut?

In the US, private sector PMI numbers, on December 16, will set the tone for the week. A decline in the Services PMI, weighed by price and employment drops, could refuel bets on multiple Fed rate cuts. Conversely, a higher PMI alongside increasing employment and prices may signal a hawkish December Fed rate cut.

Meanwhile, robust retail sales bolster hawkish Fed rate cut expectations, supporting further USD/JPY pair gains.

On Wednesday, the Fed will deliver its interest rate decision. Economists expect a 25-basis point interest rate cut, placing market focus on the economic projections and press conference.

Projections for a more hawkish Fed rate path may drive the USD/JPY toward 160 on interest rate differentials. Conversely, signals for multiple Fed rate cuts may pull the USD/JPY below 150.

On Friday, the US Personal Income and Outlays Report will wrap up an important week for the USD/JPY pair. Core PCE Price Index and personal income/spending trends could influence sentiment toward a Q1 2025 Fed rate cut.

In summary, a December and a potential Q1 2025 rate cut could drag the USD/JPY toward 140. Conversely, a hawkish Fed rate cut may drive the pair toward 160.

Short-term Forecast:

Near-term USD/JPY trends will hinge on the looming Fed and Bank of Japan interest rate decisions. A narrowing in the US-Japan interest rate differential in favor of the Yen could pull the USD/JPY pair toward 140. Conversely, a BoJ hold and hawkish Fed rate cut may drive the pair toward 160.

Investors should monitor real-time data, central bank decisions, and expert commentary to adapt trading strategies effectively. Don’t miss crucial market movements. Follow our real-time FX updates and stay ahead in the markets here!

USD/JPY Price Action

Daily Chart

After last week’s rebound, the USD/JPY sits above the 50-day and 200-day EMAs, signaling bullish momentum tied to BoJ and Fed policy expectations.

A USD/JPY return to 155 would support a move toward the 156.884 resistance level. Furthermore, a break above the 156.884 resistance level could enable the bulls to target the crucial 160 level.

Investors should consider the economic indicators and central bank policy decisions, potentially affecting USD/JPY price trends.

Conversely, a drop below the 50-day EMA could bring the 200-day EMA and 149.358 support level into play. A fall through the 149.358 support level may signal a drop to the 140.309 support level.

The 14-day RSI at 58.33 indicates a USD/JPY climb to the 156.884 resistance level before entering overbought territory (RSI above 70).

Dive deeper into the trends. View our latest USD/JPY chart analysis for technical insights.