USD/JPY Price Forecast - Dollar to Yen Falls to 154.50 as Yen Strengthens as BoJ Rate Hike Bets

USD/JPY (Dollar–Yen) Slides Toward 154.50 as Fed Cut Bets Clash With BoJ Hawkish Shift

The USD/JPY pair extended its two-week losing streak, plunging to 154.50, its lowest level since mid-November, as diverging monetary policies between the Federal Reserve and the Bank of Japan created sharp volatility across global FX markets. The yen strengthened after BoJ Governor Kazuo Ueda hinted that the central bank could lift its benchmark rate to 0.75% at the December 18–19 meeting, while U.S. economic data showed rapid cooling in labor and service activity, igniting heavy dollar selling.

BoJ Policy Pivot Reshapes Yen Outlook

Ueda’s remarks signaled the clearest path yet toward abandoning ultra-loose policy. Japan’s S&P Global Composite PMI rose to 52.0 in November, marking the eighth straight month of expansion, while Prime Minister Sanae Takaichi’s stimulus program—funded by new debt—pushed 30-year JGB yields to record highs near 2.35%. The tightening yield spread narrowed the gap versus U.S. Treasuries and lifted the yen from its multimonth lows near 158.00. Markets are now pricing a 25-basis-point BoJ rate hike with over 80% probability, the strongest expectation since 2007.

U.S. Data Confirms Rapid Cooling in Labor and Services

On the U.S. side, weakness was evident across the data stream. The ADP report showed private-sector payrolls shrinking by 32,000 jobs in November — the steepest decline since early 2023 — while the ISM Services Employment Index slipped to 48.9, signaling contraction. These figures drove the Dollar Index (DXY) below 99.00, its weakest reading in over a year, as investors raised the probability of a Fed rate cut in December to 90%. The PCE inflation print, delayed to Friday, is expected near 2.7% YoY, a level consistent with Fed dovish bias.

Technical Structure: Pivotal 155 Zone in Focus

Technically, USD/JPY trades just above a dense confluence of supports. The pair’s current floor sits at 154.82 – 155.03, aligning with the 78.6% retracement of the 2024 range and the April median pitchfork support. This cluster defines the market’s decision point: a sustained break below 154.80 would expose the 153.65 level, followed by 151.92 – 151.94, the 2022–2023 swing highs. Conversely, resistance stands at 156.52, then 157.70, and the year-to-date top near 158.88. Above 159.00, technicals turn sharply bullish toward 161.95, the 2024 high close.

Momentum indicators remain bearish; the RSI hovers near 38, confirming downside pressure, while the 200-period moving average near 154.40 acts as short-term magnet support. A weekly close beneath that level would formally end the seven-month uptrend that began in April.

Bond Market and Intervention Dynamics

Japan’s yield curve is now steepening rapidly as the market anticipates policy normalization. The 10-year JGB yield has reached 1.12%, narrowing the spread against the U.S. 10-year Treasury—which fell to 3.94%—to its tightest since 2022. This narrowing removes one of the core supports for USD/JPY. Additionally, Japanese officials have renewed FX-intervention warnings, signaling readiness to defend against “excessive yen weakness.” Traders estimate that official intervention thresholds now sit between 155.00 and 156.50, with verbal defense intensifying once the pair breaches 156.00.

Fed Transition Adds to Dollar Pressure

Speculation that White House economic adviser Kevin Hassett could replace Jerome Powell as Fed Chair when his term expires in May has unsettled bond markets. Investors fear a politically driven, ultra-dovish pivot, which has already pressured U.S. yields and undermined the dollar. Combined with weak jobs data, traders are now pricing 125 basis points of cumulative cuts across 2025, pulling short-term Treasury yields below 4.2%, their lowest since 2023.

Short-Term Trading Setup and Market Sentiment

From a tactical perspective, USD/JPY remains heavy below 155.70. Any rebound faces resistance at the 20-period MA (155.50) and the 156.00 round figure. Above that, 156.65 – 157.00 is the next pivot zone before bulls can re-target 158.00. On the downside, a confirmed break of 154.80 exposes 153.60, matching the November 14 swing low. The pair’s daily volume profile shows accumulation between 154.20 – 154.60, suggesting this area could act as a temporary stabilization pocket before the next directional impulse.

Macro Divergence Defines December Trajectory

The December 10 Fed decision and the BoJ meeting one week later now define the path forward. A 25 bps BoJ hike combined with a Fed cut would trigger the strongest yen rally since 2020, potentially driving USD/JPY toward 150.00 within weeks. Conversely, a hawkish Fed surprise could lift the pair back toward 157.50, but such a move appears unlikely given the weakening macro backdrop.

TradingNews.com Verdict

The broader trend in USD/JPY (¥) has shifted from consolidation to correction. Momentum, yield differentials, and macro signals favor yen strength as both policy divergence and domestic data align against the dollar. The 155 handle remains the battlefield — below it, downside momentum accelerates; above it, stabilization may occur only briefly before renewed selling.
Verdict: SELL (Bearish Bias) — Target 153.60, extended to 151.90 if BoJ confirms December hike.
Neutralization Level: 156.50 (reclaiming this invalidates the bearish bias).
Macro Driver: Fed-BoJ policy divergence and cooling U.S. labor data remain decisive.

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