USD/JPY Price Forecast - USDJPY=X Near 158 as BoJ’s “Dovish Hike” Supercharges Yen Selling

USD/JPY Price Action: Yen Selloff Turns The Pair Back Toward 2025 Highs

Macro Divergence Driving The Latest USD/JPY Spike

The last week pushed USD/JPY sharply higher, with the pair jumping more than 200 pips on Friday alone and finishing near ¥157.7–¥157.8, close to the 2025 high. On a weekly basis the move adds roughly 1.2%–1.3%, extending a two-week advance and leaving the dollar firmly in control against the yen. This is not happening in isolation. The US dollar index just staged a V-shaped recovery, slipping below 98 to a low near 97.87 early in the week and then reversing to close around 98.75, up about 0.36% on the week. At the same time, the yen has become the weakest major currency across the G10 board, with every major pair posting gains against it. The net result is a classic macro divergence story: the dollar is edging higher, not because the Fed is turning aggressively hawkish, but because US data remain “good enough” while Japan is promising to keep real rates negative for years. USD/JPY is the cleanest expression of that gap.

US Inflation, Labor Data And Fed Expectations Support A Firm Dollar

Recent US macro data delivered a dovish tilt on paper but did not break the dollar. Headline CPI printed at 2.7% year-on-year versus expectations around 3.1%, and core CPI slipped toward 2.6%, the lowest since early 2021. Average hourly earnings rose only 0.1% month-on-month compared with the 0.3% consensus, pointing to easing wage pressure. Non-farm payrolls were broadly in line with expectations, while the unemployment rate ticked up to 4.6%, the highest since 2021, signalling a cooling but not collapsing labor market. Despite softer inflation and slower wage growth, Fed-funds futures still price roughly two 25-basis-point cuts in 2026, for a total of about 50 basis points, with the first move pushed toward mid-year rather than the immediate months. Probability for a cut as early as January remains low, around the mid-20s in percentage terms. In other words, the Fed is seen easing gradually, not racing to slash rates. That keeps short-term US yields relatively elevated, especially versus Japan, and underpins the dollar side of USD/JPY even while equities and metals trade with a risk-on tone.

BoJ’s “Hawkish Headline, Dovish Reality” Keeps USD/JPY Pointed Up

The real driver of the latest leg in USD/JPY is the Bank of Japan. The BoJ raised its policy rate by 25 basis points to 0.75%, the highest level since 1995, having finally walked away from decades of near-zero nominal rates. On the surface that looks yen-positive. In practice the message was the opposite. The central bank repeated that real interest rates will remain negative for the foreseeable future and stressed that policy is still accommodative. Guidance on the future path of hikes was vague, and markets now price only one additional 25-basis-point move over the next year, which would merely take the policy rate to 1.0%. Against Japanese inflation that is running above 2%, the BoJ is effectively promising to maintain negative real yields while other major central banks are already at or near positive territory. Traders reacted exactly as you would expect. After several days of range trading around ¥155.5, USD/JPY ripped through resistance, punching above ¥157 and tagging intraday highs close to ¥157.8. Weekly gains of about 1.25% make the yen the clear underperformer among major currencies, and the BoJ’s reassurance that it is in no hurry to normalize further effectively invites renewed carry trades funded in JPY.

Japan’s Inflation Shift Versus The US Adds A New Layer To USD/JPY

For the first time since 1979, Japan’s underlying inflation has overtaken US core inflation. Japan’s “core-core” CPI has moved above US core CPI, ending a 45-year period in which US prices almost always grew faster than Japan’s. Historically that gap justified ultra-loose Japanese policy and a structurally soft domestic inflation backdrop. That pattern is now breaking. The latest readings show US price growth decelerating, while Japanese inflation is holding at slightly higher levels, supported by wage gains and a slow erosion of deflation psychology. This inversion matters for the medium-term narrative around USD/JPY. A country with higher inflation and negative real rates, funded by massive government debt, would normally be expected to defend its currency more aggressively. Instead the BoJ is signalling patience and flexibility, not urgency. Markets read that as confirmation that policymakers are willing to tolerate a cheaper yen as long as the moves are not chaotic. For USD/JPY, that mix—Japanese inflation finally alive but monetary policy still deeply behind the curve—reinforces the view that the yen remains an attractive funding currency despite the recent hike.

Global Central Bank Mix: Cuts Elsewhere, Ultra-Loose Japan And The Carry Trade In USD/JPY

While Japan is hiking in tiny steps from deeply negative territory, other central banks are at a different stage of the cycle. The Bank of England just cut its policy rate by 25 basis points, yet the pound strengthened because the accompanying communication was less dovish than markets had positioned for. The European Central Bank held rates steady but clearly signalled that its tightening phase is over. In North America, Canadian CPI is running close to 0.1% month-on-month and the Bank of Canada is not in a hurry to tighten further. Across the G10, the pattern is straightforward: most central banks have finished hiking and are contemplating when to cut, while Japan is only formally exiting negative nominal rates but pledging to keep real rates under water. That creates a structural environment where borrowing in JPY to buy higher-yielding assets elsewhere continues to make sense. USD/JPY sits at the heart of that theme, as US short-term yields remain significantly above Japan’s and the currency pair offers a strong positive carry, especially when leveraged. As long as the Fed does not pivot to aggressive early cuts, the interest-rate differential will keep favouring the dollar side.

Risk Sentiment, Metals And Equities Reinforce A Short-Yen Backdrop For USD/JPY

The broader market backdrop is supportive for pro-risk, short-yen positioning. The S&P 500 is hovering near record territory, closing the week around 6,834.5 after briefly testing resistance near 6,958–6,972. The Nasdaq Composite is trading above 23,300, with talk of a potential “Santa rally” despite holiday-thin liquidity. Precious metals have exploded higher. Gold has approached its all-time high, hitting around $4,374 per ounce, while silver surged to roughly $67.46, up more than $5 on the week and an extraordinary 132% year-to-date. Platinum just broke above $2,000 for the first time since 2008, finishing the week at its high. This combination—strong equity indices and surging metals—fits an environment in which investors are comfortable running risk and looking for funding currencies to short. The yen is the obvious candidate, given the BoJ stance. Long positions in silver, platinum and gold, as well as US equity indices, can all be financed via short JPY legs, and USD/JPY is the cleanest single pair to express that funding pressure. As long as volatility remains controlled, the correlation between rising risk assets and a weaker yen is likely to persist.

Cross-JPY Moves Confirm Broad Yen Weakness Beyond USD/JPY

The yen’s slide is not limited to USD/JPY, which confirms that the move is not just a dollar story. The Swiss franc has broken to record highs against the yen, with CHF/JPY touching the upper 190s and displaying a near-perfect rising regression channel since March. The euro and the pound have both reached multi-year highs versus JPY, with EUR/JPY and GBP/JPY briefly trading above 184 and 210 respectively. This pattern underlines how one-sided yen sentiment has become: the currency is weakening against both high-yielding and low-yielding counterparts, even where rate differentials are less extreme than in USD/JPY. The Swiss example is illustrative. Switzerland’s policy rate sits around zero, and the economy is flirting with deflation, yet CHF is strengthening versus JPY because markets believe the Swiss National Bank will tolerate gradual appreciation, while the BoJ is formally committed to negative real rates. That confirms that the yen is being singled out and used systematically for funding, and it reinforces the view that upward pressure on USD/JPY is part of a larger, structural re-rating of the Japanese currency.

Technical Structure: USD/JPY Weekly Break Points To Retest Of ¥158.88 And The ¥160 Zone

On the weekly chart, USD/JPY has printed a powerful bullish outside bar that engulfs the prior week’s range and closes almost at the high. Price now trades above both the 13-week and 26-week reference levels, indicating that the long-term trend gauge used by many macro traders has flipped back to bullish. The pair is approaching the 2025 high near ¥158.88, which represents the last major swing peak before the latest consolidation phase. A decisive weekly close above that level would open the path toward the psychologically important ¥160 handle. Below the market, support has clearly formed around ¥155, which attracted buyers immediately after the BoJ decision and acted as the springboard for Friday’s surge. A second support layer lies in the ¥153–¥154 area, where previous breakouts originated earlier in the year. As long as USD/JPY holds above ¥155 on weekly closes, the structure remains an orderly bullish channel rather than a blow-off top. Momentum indicators are elevated but not extreme, consistent with an ongoing trend rather than a finished move.

Short-Term Price Action: Dips Toward ¥155 In USD/JPY Still Attract Buyers

Zooming in, the daily chart shows that every pullback into the mid-150s during the last two weeks has been met with aggressive buying. Intraday drops below ¥156 have been shallow and short-lived, reversing within the same session. The BoJ meeting triggered an initial knee-jerk dip, but price quickly found support at the ¥155 figure and then ripped higher as traders digested the negative-real-rate guidance. Near term, initial resistance sits just below ¥158, and then at the prior swing high near ¥158.88. A clear daily close through that band without a long upper wick would be a strong signal that the up-leg is resuming. If that happens, the ¥160 level becomes the next obvious target, followed by the previous multi-decade high around ¥161.9 that prompted Japanese intervention in 2024. On the downside, a daily close back below ¥155 would be the first warning that the bull trend is stalling and that a deeper correction toward the ¥152–¥153 zone is underway. For now, the pattern of higher lows and higher highs is intact, and the market is rewarding traders who buy dips rather than chase breakouts at the top of short-term ranges.

Policy Risk, Intervention Threat And Volatility Around USD/JPY

No USD/JPY strategy is complete without addressing the intervention risk. Japanese authorities last stepped into the foreign-exchange market when the pair spiked above ¥161.9 in 2024, triggering a sharp multi-yen reversal. Since then, officials have repeated that they are prepared to act against “excessive volatility” rather than defend any fixed level. With spot now near ¥157–¥158, the distance to the previous intervention zone is not huge. A fast, illiquid spike above ¥160, especially around year-end when liquidity is thin, would inevitably raise the probability of official action. At the same time, the messaging from the finance ministry suggests that gradual, trend-like depreciation is more tolerable, particularly if it reflects underlying rate differentials and is not seen as speculative overshoot. That nuance matters. It implies that a controlled grind higher in USD/JPY could continue for quite some time without provoking heavy-handed intervention, whereas a vertical blow-off move could be slapped down quickly. Traders running long positions need to respect this asymmetry by sizing conservatively and avoiding excessive leverage right under the 160–162 band.

Macro Wildcards: US Data Noise, Government Shutdown Distortions And Their Impact On USD/JPY

A further complication for the USD/JPY path is the quality of the latest US data. The recent CPI release was compiled under the shadow of a 43-day government shutdown that disrupted data collection. Limited price sampling in October and delayed November surveys raise the risk that the 2.7% headline and 2.6% core readings are slightly understated. Several analysts have warned that the numbers may carry a downward bias and that confirmation will only arrive with December’s report. If subsequent releases revise the inflation picture higher, the Fed could lean more hawkish than the current futures curve suggests, supporting the dollar side of USD/JPY further. Conversely, if the softer inflation trend is validated, rate-cut expectations may firm up while still remaining modest compared to the extremely low Japanese rates. Either way, Japan’s policy rate at 0.75% with a possible path only to 1.0%, against US policy comfortably above that level, leaves the interest-rate differential wide, and the bias in carry still points toward being long USD/JPY, even if the exact slope of the path depends on the noise in US macro prints.

Medium-Term View: USD/JPY As A Core Carry Trade And Strategic Short-Yen Play

Putting all strands together, USD/JPY is evolving into a core expression of the global macro regime. Japan has moved from chronic deflation to moderate inflation that now even exceeds the US on some core measures, yet the BoJ is explicit that it will keep real rates negative and normalize only slowly. The US, in contrast, is gliding toward 2% inflation with a labour market that is cooling but still functional and a central bank that is in no rush to cut aggressively. Equity indices remain near record highs, precious metals are rallying hard, and volatility across major FX pairs is moderate. That is a textbook backdrop for sustained carry trades funded in the lowest-yielding currency. With CHF/JPY, EUR/JPY and GBP/JPY all pushing into or near historic highs, the yen has become the funding leg of choice. USD/JPY adds the advantage of deep liquidity, tight spreads and a clear policy divergence, making it the natural anchor for medium-term short-yen strategies. Unless Japan surprises with a faster tightening cycle or the Fed is forced into emergency cuts by a shock recession, the structural drivers favour a higher trading range for the pair over 2026.

Trading Stance On USD/JPY: Bias Bullish, Rated As A Buy On Dips

After integrating the macro data, central-bank signals, cross-asset flows and technical structure, the balance of evidence is clearly bullish for USD/JPY. The pair is trending higher, sits just below key resistance near ¥158.88, enjoys a wide and persistent rate advantage in favour of the dollar, and is supported by a global environment where investors are comfortable shorting the yen to finance risk assets. The BoJ’s decision to hike to 0.75% while explicitly promising negative real rates for years effectively green-lights continued yen weakness, even as Japanese inflation finally rises. Intervention remains the main tactical risk, but history suggests that officials act only once moves become disorderly and levels above ¥160–¥162 are tested at speed. With that in mind, the strategic stance is straightforward. USD/JPY is a Buy, with a bullish bias. Dips toward the ¥155–¥156 region are attractive accumulation zones for medium-term longs, with upside targets focused first on a clean break of ¥158.88, then on ¥160, and potentially on a retest of the prior spike zone above ¥161 if global conditions remain supportive. Risk management should respect the intervention overhang, but the underlying macro and technical picture argues that the path of least resistance for USD/JPY is still higher.

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