USD/JPY Price Forecast: Bulls seem reluctant amid BoJ rate hike bets, ahead of US data

• USD/JPY attracts fresh buying on Tuesday, albeit it lacks bullish conviction.
• A combination of factors underpins the JPY and caps the upside for the pair.
• Trades also seem reluctant ahead of this week’s important US macro data.

The USD/JPY pair regains positive traction following the previous day's good two-way price swings and sticks to its intraday gains around the 150.00 psychological mark during the early European session on Tuesday. Spot prices, however, remain close to a six-week low touched on Monday amid rising bets that the Bank of Japan (BoJ) will hike interest rates again in December. The expectations were lifted following last week's release of a stronger Tokyo November Consumer Price Index (CPI), which indicated that the underlying inflation is gaining momentum. Adding to this, BoJ Governor Kazuo Ueda said on Saturday that the next interest rate hikes are nearing in the sense that economic data are on track. Ueda further added that the central bank will adjust the degree of monetary easing at the appropriate time if it becomes confident or certain that the economy will move as forecasted and that the underlying inflation will rise toward 2%.

This, along with geopolitical risks stemming from the worsening Russia-Ukraine war and US President-elect Donald Trump's tariff plans, underpins the safe-haven Japanese Yen (JPY) and caps the USD/JPY pair. In fact, Trump pledged to impose big tariffs against America’s three biggest trading partners – Mexico, Canada and China.  Moreover, Trump threatened a 100% tariff on 'BRICS' nations – Brazil, Russia, India, China, and South Africa – if they replace the US Dollar (USD) with another currency for international transactions.  This continues to fuel speculation that Trump's policies will reignite inflation and force the Federal Reserve (Fed) to keep interest rates high for a longer period, providing a modest lift to the US Treasury bond yields. The markets, however, are still pricing in a nearly 75% chance that the US central bank will lower borrowing costs by 25 basis points at its upcoming monetary policy meeting later this month. 

This further contributes to keeping a lid on the USD/JPY pair. Investors also seem reluctant and opt to wait for this week's key US macro releases, including the closely watched Nonfarm Payrolls (NFP) report. Apart from this, Fed Chair Jerome Powell's speech will be looked upon for cues about the interest rate outlook in the US, which, in turn, will influence the USD price dynamics and provide some meaningful impetus to the currency pair. Nevertheless, the aforementioned fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that spot prices have formed a near-term bottom around the 149.00 mark and positioning for any further gains.

Technical Outlook

From a technical perspective, the USD/JPY pair managed to defend and rebound from the 100-day Simple Moving Average (SMA) support near the 149.00 mark. The said handle should now act as a key pivotal point, which if broken decisively would be seen as a fresh trigger for bearish traders. Spot prices might then accelerate the fall towards the 50% retracement level of the September-November rally, around the 148.20 region, en route to the 148.00 mark. The downward trajectory could extend further towards the 61.8% Fibonacci retracement, around the 147.00 round figure, with some intermediate support near the 147.35 area.

On the flip side, any subsequent move-up is likely to confront stiff resistance near the overnight swing high, around the 150.75 region, ahead of the 151.00 round figure. A sustained strength beyond the latter might trigger a short-covering rally and lift the USD/JPY pair to the 151.65 region en route to the 152.00 mark. The latter represents the very important 200-day Simple Moving Average (SMA) breakpoint, which if cleared decisively will suggest that the recent corrective pullback from a multi-month top has run its course. This, in turn, would shift the near-term bias back in favor of bullish traders.

USD/JPY daily chart