USD/JPY Price Forecast: Stronger Tokyo CPI-led slump to sub-150.00 levels favors bears

The Japanese Yen (JPY) resumed its broad-based rally following the release of stronger consumer inflation figures from Tokyo, Japan's capital, which reignited speculation about another rate hike by the Bank of Japan (BoJ) as early as December. In fact, the Statistics Bureau of Japan reported this Friday that the headline Tokyo Consumer Price Index (CPI) surged 2.6% year-on-year in November as compared to 1.8% in the previous month. Meanwhile, core CPI, which excludes volatile fresh food items, rose 2.2% YoY and a gauge that strips out both energy and fresh food costs also climbed by 2.2% during the reported month. This signaled that the underlying inflation is gaining momentum and backs the case for further tightening by the BoJ. 

Apart from this, concerns about the effect of US President-elect Donald Trump's trade tariffs on global growth and the protracted Russia-Ukraine war provide an additional boost to the safe-haven JPY. Trump earlier this week pledged to impose tariffs on all products coming into the US from Canada, Mexico and China, which, in turn, could trigger trade wars. Meanwhile, Russian President Vladimir Putin said that Russia could use its new hypersonic missile to attack decision-making centers in Ukraine in response to the latter's firing of Western missiles at its territory. This, along with a weaker US Dollar (USD), contributes to the USD/JPY pair's steep intraday decline to levels below the 150.00 psychological mark, or the lowest since October 21. 

The USD Index (DXY), which tracks the Greenback against a basket of currencies, fails to capitalize on Thursday's modest gains and drops to a fresh two-week low amid bets that the Federal Reserve (Fed) will cut interest rates again in December. In fact, the currency market pricing points to a 70% probability that the US central bank will lower borrowing costs by another 25 basis points next month. Adding to this, expectations that Trump's Treasury secretary nominee, Scott Bessent – a fiscal conservative – will likely want to control US deficits drag the yield on the benchmark 10-year US government bond to a one-month low. This, in turn, weighs on the buck and turns out to be another factor driving flows towards the lower-yielding JPY. 

Meanwhile, investors now seem convinced that Trump's expansionary policies would revive inflationary pressures. Moreover, the US Personal Consumption Expenditure (PCE) Price Index showed on Wednesday that the progress in lowering inflation stalled in October. This comes on top of minutes from the November FOMC meeting earlier this week, which revealed that the Committee could pause its easing of the policy rate if inflation remained elevated. This suggests that the Fed may proceed cautiously and fuels uncertainty over the outlook for rates in 2025, which could limit the USD losses and lend support to the USD/JPY pair. Nevertheless, spot prices remain on track to register heavy weekly losses and prolong a two-week-old downtrend.

Technical Outlook

From a technical perspective, this week's breakdown below the 200-day Simple Moving Average (SMA) and the 38.2% Fibonacci retracement level of the September-November rally could be seen as a key trigger for bearish traders. Moreover, oscillators on the daily chart have been gaining negative traction and are still away from being in the oversold zone, suggesting that the path of least resistance for the USD/JPY pair is to the downside.

Hence, any meaningful recovery attempted is more likely to confront stiff resistance near the 151.00 round figure. Some follow-through buying, however, could assist the USD/JPY pair to climb further beyond the 151.50 intermediate hurdle and aim to reclaim the 152.00 mark. The latter coincides with the 200-day SMA, above which the momentum could extend to the 152.65-152.70 region en route to the 153.00 mark and the 153.30-153.35 zone.

On the flip side, acceptance below the 150.00 psychological mark will reaffirm the negative outlook and drag the USD/JPY pair below the Asian session low, around the 149.50 region, towards the 149.00 mark. The downward trajectory could extend further to the 148.00 neighborhood, or the 50% retracement level, with some intermediate support around the 148.55-148.50 area.

USD/JPY daily chart