• The USD/JPY forecast is expected to tilt downside as the BoJ rate hike expectations increase the yen’s demand.
• The US CPI data showed a cooling momentum, while Japan’s inflation remains sticky.
• Fed-BoJ divergence could support the USD/JPY in the near term.

The USD/JPY is trading under pressure in anticipation of the Bank of Japan’s policy announcement. However, the pair has slightly gained despite an upbeat national CPI in Japan.

The BoJ will announce its rate decision between 03:30 and 05:00 GMT, and the press conference of Governor Kazuo Ueda will take place at 06:30 GMT. Investors are awaiting clarity, which is reducing trading activity.

The BoJ is expected to increase its policy rate to 0.75% from 0.50%. This would be the highest in nearly 30 years, if confirmed. The action would suggest that inflation and wage growth are sufficiently high to warrant stricter policy. Recent inflation statistics support this, as Japan’s national CPI increased by 2.9% in November. Meanwhile, core CPI, which excludes fresh food, stood at 3.0%.

The USD/JPY remains choppy ahead of the meeting. The pair has partially erased the losses, but the selling pressure has appeared in gradual steps, implying a strategic positioning rather than a panic-driven response.

US data has also played a role. The November CPI was reported as 2.7% YoY, which is significantly lower than the expected 3.1% while core CPI slowed to 2.6%. The price gain was only 0.2% per month. The statistics alleviated concerns about inflation, allowing the Fed to maintain its easing policy in 2026. The Treasury yields fell, pushing the greenback lower against most of its peers.

The policy divergence between the US and Japan is evident, influencing the USD/JPY trades. Japan is heading towards a rate hike, while the US is looking to ease further in 2026. The narrowing yield gaps support the yen, devaluing the dollar.
 

USD/JPY Technical Forecast: Awaiting a Breakout
 

(Click on image to enlarge)

USD/JPY 4-hour chart
 

The USD/JPY price remains technically supported by the confluence of 20- and 200-period MAs, while wobbling around the 50- and 100-period MAs. Meanwhile, the RSI stays above the 50.0 level but is flat. This suggests the pair lies in the consolidation phase, awaiting a catalyst to trigger a breakout.

A breakout below the 20-period MA could push the prices to test the demand zone near 154.50 ahead of a horizontal level at 153.00. On the upside, the first resistance level emerges at 156.00, ahead of a potential swing high near the December highs at 156.90.

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