USDJPY – Five Minute Chart – 191225 – BoJ
Bank of Japan Governor Ueda in the Spotlight
As markets react to the BoJ’s monetary policy decision and rate statement, the market focus will begin shifting to the upcoming BoJ Governor Kazuo Ueda’s press conference. Governor Ueda may provide more insights into the BoJ’s neutral interest rate and timeline for rate hikes in 2026.
A 1.5% to 2.0% neutral rate would indicate multiple rate hikes, sharply narrowing US-Japan rate differentials. A higher neutral rate would support the bearish short- to medium-term outlook for USD/JPY.
University of Michigan Survey of Consumers in Focus
Later on Friday, the finalized Consumer Sentiment figures will influence US dollar demand. According to the Preliminary Report, the Michigan Consumer Sentiment Index rose from 51.0 in November to 53.4 in December.
Typically, a higher Consumer Sentiment reading would signal a pickup in private consumption. A pickup in consumer spending fuels demand-driven inflation, supporting a more hawkish Fed policy stance.
However, consumers’ views on inflation also require consideration. A softer inflation outlook may indicate a delay in spending due to the expectation of lower prices in the future. A pullback in spending would dampen demand-driven inflation, suggesting a more dovish Fed rate path.
Given these dynamics, sentiment toward inflation is likely to be key for the Greenback and USD/JPY trends. The Michigan 1-Year Inflation Expectations fell from 4.5% in November to 4.1% in December. A downward revision, combined with November’s softer-than-expected US CPI Report, would raise bets on a March Fed rate cut, weighing on US dollar demand.
According to the CME FedWatch Tool, the chances of a March Fed rate cut increased from 53.9% on December 17 to 59.5% on December 18, boosted by US headline inflation falling from 3% in September to 2.7% in November. The October report was canceled because of the US government shutdown.
Beyond the data, traders should monitor FOMC members’ speeches for views on the labor market, inflation, and calls for a March rate cut. Dovish rhetoric would signal a sharper narrowing in US-Japan interest rate differentials, supporting the bearish short- to medium-term outlook for USD/JPY.
Technical Outlook: USD/JPY on a Downward Trajectory
With markets focused on technical indicators and fundamentals, they will offer key insights into potential USD/JPY price trends.
Looking at the daily chart, USD/JPY traded above the 50-day and 200-day Exponential Moving Averages (EMAs), indicating a bullish bias. While technicals remained bullish, fundamentals are increasingly outweighing the technical structure, indicating a bearish outlook.
A break below the 155 support level would expose the 50-day EMA. If breached, 150 would be the next key support level. Importantly, a sustained drop below the 50-day EMA would indicate a bearish near-term trend reversal, bringing the 200-day EMA and 150 into play. A break below the 200-day EMA would reinforce the bearish medium- to longer-term USD/JPY price outlook.
AloJapan.com