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USD/JPY rises amid yen weakness post-earthquake & with central banks in focus

USD/JPY is rising amid yen weakness. The yen is the weakest G10 currency, falling against its major peers.

The yen fell yesterday and is extending those losses today, albeit to a lesser extent, after coming under pressure following an earthquake in northeastern Japan on Monday, which briefly raised concerns about economic disruptions. The earthquake measured 7.6 on the Richter Scale, and Tsunami warnings have now been lifted.

A downward revision to Japan’s Q3 GDP also weighed on the currency, supporting PM Takaichi’s stance to boost growth, while also complicating the outlook for the BoJ.

The central bank is expected to raise interest rates next week amid a gradual path to normalization. While recent hawkish comments from BoJ Ueda have helped the yen recover from an 8-month low versus the USD, the yen still trades over 5% lower since the start of October, pressurised by PM Takaichi's huge spending plans, which have sent Japanese bond yields to multi-decade highs.  

Any meaningful recovery in the yen would require not just the BOG to follow through with stronger guidance but also for policymakers to demonstrate fiscal prudence.

This weakness in the yen is more evident against other yen crosses, with the JPY trading at a 16-month low versus GBP, a 35-month low versus the AUD, and at a 17-month low versus the AUD, particularly after the hawkish RBA held overnight.

Meanwhile, the USD is unchanged ahead of tomorrow’s FOMC rate decision, where the central bank is expected to cut rates by 25 basis points, which is broadly priced in. Attention will be on Powell’s tone and the dot plot for clues over what comes next.

Today, JOLTS job openings and ADP 4-week average employment change will be in focus, but moves in the USD could remain muted ahead of tomorrow's decision.

Near-term Worries of hawkish Fed cut and a dovish BoJ hike are supportive of USD/JPY.
 

USD/JPY forecast – technical analysis

USD/JPY broke out of the multi-month rising channel, hitting an 8-month high of 157.90 before easing lower to the 155 support zone. The price has recovered from the 155 support zone and is heading higher, testing the 156.40 resistance level. The long-term uptrend remains intact.

Buyers will look to rise above 156.40 to extend gains to 157.90 and beyond, creating a higher high towards 160.00.

Support is seen at 155. A break below here opens the door to 153, the October 8 high, and the 50 SMA.
 

(Click on image to enlarge)

DAX rises to an almost 1-month high

The DAX is rising for a fourth straight session, pushing to a nearly monthly high of 24,180.

The rise in Europe follows solid gains in the US after U.S. President Trump said NVIDIA should be allowed to export its top H200 chips to China. However, there is also an element of caution ahead of tomorrow’s FOMC decision.

The Fed is expected to cut rates by 25 basis points; however, the main focus will be on what Fed Powell says, given the divided central bank, and on how many rate cuts the dot plot projects for 2026.

Markets are predicting 77 basis points of easing through the end of 2026, meaning two more rate cuts after the December reduction remain on the table. The broad expectation is for a semi-hawkish tone from the Fed, cautioning that the bar is high for another rate cut, so that a dovish tilt could boost volatility for stocks across the globe.

On the data front, German exports unexpectedly rose in October, defying expectations for a decline, thanks to European Union trade, while shipments to the US and China fell sharply. Exports from Europe's largest economy rose 0.1% in October, below expectations of 0.5%.

Exports to EU countries rose by 2.7% on the month, whilst exports of goods to countries outside of the EU declined by 3.3%.

The trump administration imposed a 15% import tariff on most goods from the EU under a deal reached with the bloc. The US was Germany's largest bilateral trading partner in 2024, with two-way goods totaling €253 billion. However, exports to the US continued falling, dropping 8.3% year on year. Meanwhile, exports to China were down 5.8%, while imports fell 5.2% on the month.

In Germany, defence stocks are getting a lift from supportive news flow on military orders. German lawmakers are set to approve procurement contracts worth a record €52 billion next week, according to Bloomberg. Rheinmetall, Renk, and Hensoldt are rising firmly.

Elsewhere, Thyssenkrupp said it expects to swing into a net loss of up to €800 million in 2026, citing restructuring provisions.
 

DAX forecast - technical analysis

DAX recovered from the 22,900 November low, rising above the 200 SMA, the rising trendline resistance, and the 50 SMA to hit 24,180, a three-week high.

Buyers, supported by the RSI above, will look to extend gains to 24,500, the November high, ahead of 24,745, the record high.

Immediate support is seen at 24,000 (the round number), the 50 SMA, 23,550 (the 200 SMA), and 23,360 (the horizontal support). A break below the 23,000 support zone creates a lower low.
 

(Click on image to enlarge)

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