Japanese Yen adds to intraday losses after BoJ rate hike; focus shift to Ueda's presser

The Japanese Yen (JPY) attracted heavy selling after the Bank of Japan's (BoJ) keenly awaited rate decision, lifting the USD/JPY pair beyond the 156.00 mark, to a one-and-a-half-week high during the Asian session on Friday. As was widely expected, the BoJ board members raised the short-term interest rate by 25-basis-point (bps) to 0.75%, the highest in roughly three-decades. In the accompanying policy statement, the central bank said the move should be seen as part of a gradual and cautious process rather than a shift toward restrictive policy. This seems to have tempered market bets for more BoJ rate hikes in 2025, which, in turn, is seen undermining the JPY.

Apart from this, a generally positive tone around the equity markets is seen as another factor undermining the safe-haven JPY. Traders, however, might refrain from placing aggressive directional bets around the JPY and opt to wait for BoJ Governor Kazuo Ueda's comments during the post-meeting press conference. In the meantime, the emergence of fresh US Dollar (USD) buying might continue to act as a tailwind for the USD/JPY pair. However, dovish US Federal Reserve (Fed) expectations might cap gains for the USD. Furthermore, the narrowing rate differential between Japan and other major economies should support the lower-yielding JPY.

Japanese Yen weakens across the board after BoJ's widely expected rate hike decision

• The Bank of Japan (BoJ) board members decided to raise the short-term interest rate by 25-basis-point (bps) to 0.75%, or the highest in 30 years, following the conclusion of its two-day policy meeting on Friday. The move was nearly fully priced in the markets and fails to boost the Japanese Yen.
• In the accompanying policy statement, the BoJ said that it would continue to raise the policy rate if the economy and prices move in line with forecasts. Policymakers added that the likelihood of achieving the baseline scenario has been rising, though they did not provide cues about future policy path.
• Earlier today, Japan's Statistics Bureau had reported that the National Consumer Price Index (CPI) rose 2.9% YoY in November, down slightly from 3.0% in the previous month. Further details revealed that a core gauge, which excludes volatile fresh food prices, held steady at 3%, as expected.
• Meanwhile, the core CPI that excludes both fresh food and energy prices, which is closely watched by the BoJ as a measure of underlying inflation, eased from 3.1% to 3% in November. Nevertheless, inflation in Japan remained sticky and well above the central bank's 2% annual target.
• The JPY bulls, however, seem reluctant and opt to wait for cues about the BoJ's appetite for further tightening before placing fresh bets. Hence, the focus will remain glued to BoJ Governor Kazuo Ueda's comments, which, in turn, should play a key role in influencing the JPY price dynamics.
• The recent sharp rise in Japanese government bonds – led by public debt of around 250% of GDP, which is the world's highest – continues to fuel concerns about Japan's worsening fiscal health amid Prime Minister Sanae Takaichi's massive spending plan. This further seems to undermine the JPY.
• From the US, the Bureau of Labor Statistics reported on Thursday that the Consumer Price Index (CPI) rose by the 2.7% YoY rate in November against 3.1% expected. Moreover, the core CPI, which excludes volatile food and energy prices, missed estimates and climbed 2.6% last month.
• The data indicated that inflationary pressures may be cooling enough for the US Federal Reserve to ease further. In fact, traders expect a 63 bps of rate cuts by the Fed in 2026. US President Donald Trump said the next Fed chair will be someone who backs sharply lower interest rates.
• This marks a significant divergence compared to hawkish BoJ bets and should support the lower-yielding JPY. The initial market reaction, however, turns out to be short-lived, which keeps the US Dollar close to the weekly high touched on Thursday and supports the USD/JPY pair.
• Investors look to the US economic docket – featuring Existing Home Sales and the revised University of Michigan Consumer Sentiment Index – for some impetus. Nevertheless, the USD/JPY pair seems poised to end nearly unchanged for the week, warranting caution for aggressive traders.

USD/JPY finds acceptance above 156.00 and seems poised to appreciate further

Against the backdrop of this week's breakout through the 100-hour Simple Moving Average (SMA), a sustained strength above the 156.00 mark will be seen as a key trigger for the USD/JPY bulls. Given that oscillators on hourly and daily charts are holding in positive territory, spot prices might then aim to test the monthly high, around the 157.00 neighborhood, touched last week, with some intermediate hurdle near the 156.55-156.60 region.

On the flip side, the 100-hour SMA resistance-turned-support, currently around the 155.30 zone, could protect the immediate downside ahead of the 155.00 psychological mark. A convincing break below the latter might prompt some technical selling and drag the USD/JPY pair to the 154.35-154.30 region, or the monthly low touched on December 5. This is followed by the 154.00 mark, which, if broken, might shift the bias in favor of bearish traders.