USD/JPY is dropping as the Yen strengthens after comments from BoJ Governor Ueda. Markets expect a rate hike from the BoJ in December and a Fed rate cut next week. Despite a generally positive outlook, momentum indicators suggest a slowdown. Currently, USD/JPY is stabilizing around 155.40 after a decline. Governor Ueda mentioned a possible rate increase at the December meeting, warning against delays that could fuel inflation. Meanwhile, the US is anticipating a rate cut from the Federal Reserve in December.

Technical Analysis Shows Positive Outlook

The technical analysis indicates that USD/JPY is in an uptrend on the daily chart, with higher highs and lows. Support is above 154.50, keeping the bullish trend intact; the price is also above the 50-day and 100-day Simple Moving Averages. Momentum indicators, such as the MACD, are dropping, and the RSI is easing to a neutral 54. If the price breaks below 154.50, it may test support at 152.69, with the 100-day SMA potentially helping at 150.20. On the upside, resistance at 156.00 might cap any recovery, but breaking through could lead to a high near 158.00. The Japanese Yen currently ranks as the strongest currency against the British Pound.

Policy Clashes Create Uncertainty

The long-term uptrend in USD/JPY is strong, but a significant test is looming. The Federal Reserve is expected to cut interest rates next week, while the Bank of Japan is hinting at a rate hike the following week. This clash of policies is creating uncertainty, which is now the primary focus for traders. Evidence suggests a stronger case for a Fed rate cut during the December 9-10 meeting. Recent data shows that US core inflation for October 2025 fell to 2.5%, and the latest jobs report reflects the slowest payroll growth in over a year. As a result, the CME FedWatch Tool indicates a 92% likelihood of a quarter-point cut, pointing to a weaker dollar ahead. On the other hand, the Bank of Japan faces pressure to tighten its policy at the December 18-19 meeting. Japan’s inflation has remained above the bank’s 2% target for over 18 months, hitting 2.8% in the latest report. Governor Ueda’s warnings about taking action before inflation escalates are being taken seriously. We are currently observing the potential reversal of the major trend from 2022-2024. During that time, aggressive Fed rate hikes against a static BoJ drove USD/JPY to multi-decade highs. Now, we might see the start of an opposite trend, which could lead to a significant correction. Given the high risk from both central banks, considering options might be a smart move to trade the expected volatility. Buying a straddle—purchasing both a call and a put option at the same strike price—could allow a trader to profit from significant price movements in either direction post-meetings. For those predicting a decline, buying put options can help define risk while betting on lower prices. A break below the key support level of 154.50 could signal an entry point for such moves. This method mitigates potential losses to the option’s premium, which is essential if the long-term uptrend resumes unexpectedly. Technical levels provide clear action triggers in the upcoming weeks. We are closely monitoring the 154.50 support line. A solid break below it might open the door to the 152.70 area. Conversely, if buyers defend this level and push prices above 156.00, it would indicate that the bullish trend remains strong. Create your live VT Markets account and start trading now.

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