USD/JPY Price Forecast: 157 Spike Fades as BoJ Hawkish Path Puts 150–140 Back on the Radar

Macro backdrop: USD/JPY trades heavy after Venezuela spike

USD/JPY started Monday by jumping toward 157.30 as markets reacted to the US move against Venezuela’s President Nicolás Maduro, then faded back toward the 156.5–156.8 area as equities, Bitcoin and crude oil all stabilized. The initial “geopolitical shock” bid into the dollar was not sustained: S&P 500 futures and the DAX pushed higher, gold and BTC rallied, and risk appetite stayed intact. That combination leaves USD/JPY in a tug-of-war: safe-haven dollar demand on headlines versus a broader risk-on backdrop that normally caps aggressive yen weakness.

Japan data and BoJ: PMI at 50.0 and a 0.75% policy rate shift the medium-term story for USD/JPY

On the Japanese side, the December Manufacturing PMI rose from 48.7 to 50.0, right on the expansion threshold, ending an 18-month stretch of more severe demand contraction. The survey showed demand for Japanese goods falling at the slowest pace in a year and a half, staffing rising at the fastest rate in four months, and average operating expenses picking up enough to drive a “sharp” increase in output prices. At the same time, the Bank of Japan has already lifted its policy rate to 0.75%, a historic move after years around zero, and Governor Ueda is explicitly talking about “wages and prices rising together moderately” and the need to keep raising rates if the economy and inflation follow the bank’s forecast. For USD/JPY, this means the structural backdrop is now skewed toward a higher BoJ neutral rate and multiple hikes over the next 6–12 months, rather than a one-off move. Rising wages, higher import prices from a weak yen, and stronger corporate pricing power all argue for tighter policy and a medium-term headwind to the cross.

US side: ISM at 47.9, 4.3% GDP and March cut odds at 54% keep Fed–BoJ gap under pressure

In the US, the latest ISM Manufacturing PMI printed at 47.9 for December, below 48.2 in November and under the 48.3 consensus, confirming ongoing contraction in a sector that represents about 10% of GDP. That came against a backdrop of stronger-than-expected data elsewhere: Q3 GDP was revised up to an annualized 4.3% versus 3.3% expected, jobless claims remained contained, and housing indicators like pending home sales beat forecasts. Fed-funds futures now price roughly a 54.0% probability of a first 25 bp cut in March and another around September, rather than an aggressive early-year easing cycle. For USD/JPY, this mix is crucial: a still-resilient US economy plus gradually rising expectations of BoJ normalization compress the yield gap from both sides. That supports a medium-term bearish bias for the pair even while short-term technicals remain constructive.

Yield differential and carry: why USD/JPY is still bid despite yen “safe haven” headlines

Despite the December hike to 0.75%, Japanese 10-year yields remain far below US Treasuries, so the carry trade still favors being long USD/JPY. Investors are no longer focused on where BoJ rates are today, but on the speed and scale of future moves. BoJ officials continue to say further hikes depend on wages and incoming data, with no clear timetable, and the government is running expansionary fiscal policy that collides with the central bank’s desire to tighten slowly. That policy fog keeps yen bulls hesitant. At the same time, every spike in geopolitical tension—Venezuela, tariffs, or broader risk events—pushes global investors back toward the dollar rather than the yen. As a result, the traditional safe-haven role of JPY has been muted: carry and policy divergence still dominate, keeping dips in USD/JPY shallow so far.

Short-term USD/JPY price action: opening 2026 in a 155.00–157.90 range

Price action at the start of 2026 has been a classic tug-of-war. USD/JPY punched up to around 157.30 early Monday before sliding back to roughly 156.55, leaving the pair lower on the day against JPY even as the dollar traded firmer versus most other G-10 currencies. Since October, the market has been oscillating between roughly 155.00 on the downside and just under 157.90 on the upside, with January 2025’s 158.88 high still intact overhead. Intraday, the pair is now testing key hourly moving averages around 156.51–156.55; staying above that confluence keeps the short-term bias constructive, while a break under that pocket would flip the near-term structure toward a deeper test of 156.00 and then 155.00. For traders, this 155.00–157.90 corridor currently defines the opening range for USD/JPY in 2026.

Daily technical structure: EMAs still bullish but 155 and 150 are the medium-term downside magnets

On the daily chart, USD/JPY still trades above both the 50-day and 200-day EMAs, which favors the bulls in pure trend terms. Immediate support sits around 156.26 at the 20-day EMA, backed by a rising trendline from 154.39 that comes in near 156.56. A daily close below that trendline would signal that the latest push into the high-156s is failing and would open the door to a retest of the December low at 154.35. Below there, the 200-day EMA and the psychological 150 area become the next logical downside magnets. On the topside, resistance is layered near 157.00–157.30, then 157.90, with a larger psychological target at 160.00 if the pair can take out last year’s 158.88 peak. The structure is effectively an ascending triangle with a flat resistance line in the high-157s and rising support: that pattern usually favors an upside break, but here it collides with increasingly bearish macro fundamentals.

Momentum and positioning: RSI elevated, carry longs crowded, intervention risk on any spike above 158

Momentum indicators underline how stretched the move is. On the daily, RSI is sitting around 56, above the mid-50s and pointing to steady but not extreme bullish pressure. On the 4-hour chart, RSI has been hovering near overbought territory as price probed 157.30 and then failed, implying tactically vulnerable longs. Positioning also matters: the cross has climbed into the high-157s multiple times since late 2025, and authorities in Tokyo have made it clear they are uncomfortable with fast, one-way yen weakness. With spot USD/JPY grinding toward the upper 157s and 158.00 still nearby, any abrupt break higher risks triggering not only verbal warnings but also outright intervention—especially in thin liquidity or if the move coincides with softer US data. That asymmetry makes chasing upside above 157.50 less attractive, even if the trend is still technically up.

Policy uncertainty and neutral rate: why the 6–12 month bias for USD/JPY is turning bearish

The BoJ’s emerging “neutral rate” discussion is the structural pivot for USD/JPY over the next year. If neutral is defined around 1.5%–2.5%, as some scenarios suggest, the market will have to price multiple hikes beyond the current 0.75%, bringing Japanese real yields closer to US levels just as the Fed is expected to cut. A path where BoJ moves gradually toward that range while the Fed only delivers two or three cuts would narrow the US–Japan rate differential sharply. That in turn would force a partial unwind of yen carry trades and push USD/JPY toward 140 over a 6–12 month horizon. Upside risks to this bearish medium-term view exist—dovish BoJ rhetoric, a neutral rate closer to 1.0–1.25%, or a string of stronger US data and hawkish Fed commentary—but even in those scenarios, Japanese officials are likely to cap upside around the high-150s with renewed intervention threats.

Trading stance and verdict on USD/JPY: Sell on rallies, with 157.50–158.00 as a preferred fade zone

Putting the pieces together, USD/JPY is being held up short term by a still-wide yield gap, risk-off flashes around events like Venezuela, and a bullish daily EMA structure, but the medium-term balance of forces is shifting against the pair as Japanese inflation dynamics, a 0.75% policy rate, and a likely higher neutral level pull the BoJ toward more tightening while US markets lean into 2026 rate cuts. With price stuck in a 155.00–157.90 band, crowded longs above 157.00, and intervention risk rising past 158.00, the risk–reward now favors fading strength rather than buying dips. My stance based on these numbers and signals is clear: USD/JPY is a Sell on rallies, with 157.50–158.00 as a preferred supply zone, targeting a first leg back into the 154.00–155.00 area and, over a 6–12 month window, an extension toward 150 and potentially closer to 140 if the BoJ’s neutral-rate path and Fed easing both unfold as the macro data currently imply.

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