Japanese Yen weakens further; USD/JPY hits multi-week top on firmer USD ahead of US NFP

The Japanese Yen (JPY) adds to its intraday losses through the first half of the European session amid the uncertainty over the timing of the next interest rate cut by the Bank of Japan (BoJ) and escalating China-Japan row. This, along with worries that consumption momentum could fade if inflation continues to outpace wage growth in early 2026, overshadows an unexpected rise in Japan's Household Spending data for November. Furthermore, concerns about Japan's fiscal situation and a stable performance across equity markets continue to undermine the safe-haven JPY.

Investors, however, seem convinced that the BoJ will stick to its policy normalization path. This marks a significant divergence in comparison to dovish US Federal Reserve (Fed) expectations, which could keep a lid on the ongoing US Dollar (USD) move up to a one-month high and help limit losses for the lower-yielding JPY. Furthermore, speculations that government authorities would step in to stem further JPY weakness warrant caution before positioning for any further appreciating move for the USD/JPY pair, as the market focus remains glued to the release of the US Nonfarm Payrolls (NFP) report.

Japanese Yen bears retain control amid rising China-Japan tensions, BoJ uncertainty

• The Statistics Bureau of Japan reported earlier this Friday that Household Spending rebounded following a sharp decline in October and unexpectedly rose 2.9% from a year earlier in November. The upbeat data, however, does little to provide any respite to the Japanese Yen amid persistent real wage weakness.
• In fact, government data showed on Thursday that Japan's inflation-adjusted real wages fell for the 11th consecutive month, by 2.8% in November, suggesting that the underlying trend of inflation outpacing wage growth has not changed. This poses a challenge for the Bank of Japan and undermines the JPY.
• Furthermore, China escalated its dispute with Japan and has begun restricting exports of rare earths and rare-earth magnets to Japan. This ban follows the recent Taiwan-related remarks by Japan’s Prime Minister and heightens supply-chain risk for Japanese manufacturers, which further weighs on the JPY.
• BoJ Governor Kazuo Ueda left the door open for further policy tightening, reiterating earlier this week that the central bank would continue to raise interest rates if economic and price developments move in line with forecasts. This, along with rising geopolitical tensions, could lend support to the safe-haven JPY.
• The US Dollar, on the other hand, preserves its gains registered over the past two weeks and stands firm near a one-month top, providing an additional boost to the USD/JPY pair. The upside for the USD, however, seems limited amid dovish US Federal Reserve expectations and ahead of the US employment details.
• Traders have been pricing in the possibility that the US central bank will lower borrowing costs in March and deliver another interest rate cut by the end of this year. Traders, however, opt to wait for more cues about the Fed's rate-cut path. Hence, the focus remains on the release of the US Nonfarm Payrolls report.

USD/JPY seems poised to climb further as break above weekly high comes into play

The 100-period Simple Moving Average (SMA) on the 4-hour chart is gently rising at 156.31, pointing to sustained upward bias. The USD/JPY pair holds above this gauge, with the average acting as immediate dynamic support. The Moving Average Convergence Divergence (MACD) line stands above the Signal line and back in positive territory, with a modestly expanding histogram that reinforces improving momentum. The Relative Strength Index (RSI) at 62 shows firm buying pressure without overbought conditions. If momentum persists, the pair could extend higher, while a pullback would bring the 100 SMA into focus.

(The technical analysis of this story was written with the help of an AI tool)