The Japanese Yen (JPY) extends its downtrend against a firmer US Dollar (USD) for the fourth straight day, lifting the USD/JPY pair back to the weekly top, around the 157.30 area, during the Asian session on Friday. Worries that consumption momentum could fade if inflation continues to outpace wage growth in early 2026 overshadow an unexpected rise in Japan’s Household Spending data for November. This, in turn, adds to the uncertainty over the timing of the next Bank of Japan (BoJ) rate hike and undermines the JPY amid an escalating China-Japan row.
Apart from this, concerns about Japan’s fiscal situation and a stable performance across equity markets further weigh on the safe-haven JPY. The USD, on the other hand, prolongs a two-week-old uptrend and touches a one-month top amid some repositioning ahead of the crucial US Nonfarm Payrolls (NFP) report, providing an additional boost to the USD/JPY pair. However, bets for more rate cuts by the Federal Reserve (Fed), which marks a significant divergence in comparison to hawkish BoJ expectations, could cap the USD and lend support to the lower-yielding JPY.
Japanese Yen selling remains unabated amid BoJ rate hike doubts, China-Japan tensions
- 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 could accelerate the momentum above the 157.30 area, or the weekly high
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)
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
