Yen Weakens as BOJ Maintains Ambiguous Outlook
Key Points
- USDJPY rose to 156.31 after BOJ’s 25bps hike failed to reassure markets of a tightening path.
- Japan’s core inflation remains at 3%, exceeding the 2% target for 44 straight months.
The Japanese yen lost ground on Friday, with USDJPY breaking above the 156 mark, up by 0.50% on the day. This move came despite the Bank of Japan raising its benchmark interest rate by 25 basis points to 0.75%—its highest level since 1995.
While the hike was priced in, markets were hoping for clearer guidance on future policy tightening. Instead, BOJ Governor Kazuo Ueda delivered a cautious tone, offering no strong signal on the next steps.
Ueda emphasised the need for flexibility and acknowledged continued uncertainty around Japan’s neutral interest rate—the level that neither stimulates nor restrains economic growth.
This lack of clarity weighed on the yen, especially as traders adjusted expectations for any further rate hikes in early 2026.
Political Headwinds and Inflation Persistence
Adding to the market’s cautious mood was the political backdrop. Prime Minister Sanae Takaichi has expressed a preference for looser monetary conditions, which could limit the BOJ’s scope to tighten policy aggressively.
Ueda’s assurance that the central bank remains in “close communication” with the government did little to settle trader concerns about potential policy interference.
Inflation data also kept the market on edge. Headline inflation in Japan eased slightly to 2.9% in November from 3.0% in October, but it still exceeds the BOJ’s 2% target for the 44th consecutive month.
Core inflation held steady at 3%, suggesting underlying price pressures remain sticky.
Technical Analysis
USDJPY is trading at 156.31, up 0.50% intraday, as bulls regain slight momentum following a brief pullback from the 157.88 peak recorded in late November.
Price action remains broadly bullish above the 30-day moving average, which is gently sloping upward, indicating that buyers still control the medium-term trend.
The recent bounce off the 154.00–155.00 region signals strong support.
However, MACD momentum has been softening since the November peak. The MACD line is still below the signal line, though histogram bars are beginning to flatten, suggesting downside momentum may be fading.
A decisive break above 157.00 would reaffirm bullish continuation, while failure to hold above 155.00 may open the door to deeper retracements toward the 152.50 area.
Traders should watch for confirmation on volume and Fed-BoJ rate divergence cues.
Cautious Forecast Ahead of Year-End Flows
With mixed signals from the BOJ and persistent inflation, the path ahead for the yen remains murky. Year-end positioning and thin liquidity may add further volatility to USDJPY.
Markets are likely to remain sensitive to both central bank commentary and inflation prints.
Until clearer forward guidance emerges, traders may treat rallies in the yen as short-lived, with USDJPY leaning towards a consolidation between 154.00 and 158.00 in the short term.Publication date:
2025-12-19 11:56:32 (GMT)
