The Japanese Yen (JPY) begins the new week on a strong bullish footing, extending its intraday rally during the Asian session and forcing the USD/JPY pair down to the 155.00 psychological level. VentraTrade brokers provide a comprehensive and clearly structured breakdown of this topic in the article.
This move reflects a growing policy divergence between a potentially hawkish Bank of Japan (BoJ) and an increasingly dovish Federal Reserve (Fed). Rising expectations for a BoJ rate hike, combined with a softer global risk tone, continue to underpin safe-haven demand for the Yen.
At the same time, the US Dollar (USD) remains under pressure near a two-month low, as markets price in additional Fed rate cuts in 2026. This widening yield differential is proving supportive for the lower-yielding JPY, reinforcing bearish momentum in USD/JPY.
Hawkish BoJ Bets Drive Japanese Yen Demand
The primary catalyst behind the Yen’s latest gains is the sharp rise in expectations for BoJ policy tightening. Recent comments from BoJ Governor Kazuo Ueda suggest that the central bank is moving closer to sustainably achieving its inflation target, a key prerequisite for further rate hikes.
Markets are increasingly confident that the BoJ could deliver an interest rate hike at the December 18–19 policy meeting, with expectations extending into additional tightening in 2026. This marks a notable shift from Japan’s long-standing ultra-loose monetary stance, lending structural support to the Yen.
Importantly, reports indicate that senior officials within Prime Minister Sanae Takaichi’s cabinet are unlikely to oppose a rate hike, reducing political resistance to policy normalization. This alignment between fiscal leadership and monetary policy further strengthens the JPY’s fundamental outlook.
Tankan Survey Signals Improving Business Confidence
Adding to the bullish narrative, the Bank of Japan’s quarterly Tankan survey, released earlier on Monday, showed a modest but meaningful improvement in business sentiment.
According to a senior BoJ official, Japanese firms cited easing uncertainty around US trade policy, resilient high-tech demand, and effective cost pass-through as key drivers of improved sentiment. These factors suggest that corporate profitability and pricing power remain intact, supporting the case for further policy normalization.
Risk-Off Sentiment Enhances Safe-Haven JPY Appeal
Beyond domestic fundamentals, a slightly deteriorating global risk environment is also boosting the Yen’s safe-haven status. Periodic bouts of equity market volatility and lingering geopolitical and policy uncertainties encourage investors to rotate into traditional defensive currencies, including the JPY.
Notably, JPY bulls appear largely unfazed by concerns over Japan’s deteriorating fiscal position, exacerbated by Prime Minister Takaichi’s massive spending plan. While long-term debt sustainability remains a structural concern, it has failed to overshadow near-term monetary policy dynamics, which continue to dominate FX pricing.
Dovish Fed Expectations Weigh Heavily on the US Dollar
On the other side of the equation, the US Dollar struggles to attract buyers, hovering near a two-month trough. Despite the Fed signaling caution around the pace of easing, markets are still pricing in two additional rate cuts next year.
Adding to USD weakness, the US President recently stated that he has shortlisted candidates to replace Fed Chair Jerome Powell, with expectations that his eventual nominee would favor interest-rate cuts. The prospect of a more politically aligned and dovish Fed leadership has kept USD bulls on the defensive, capping any meaningful recovery in USD/JPY.
Key Event Risks: US Data and BoJ Policy Meeting
Traders remain cautious ahead of major event risks this week that could trigger fresh volatility in USD/JPY. Focus is on the delayed US Nonfarm Payrolls (NFP) report for October due Tuesday, followed by US inflation data on Thursday, before attention turns to Friday’s Bank of Japan (BoJ) policy decision and Governor Ueda’s press conference.
Technical Outlook: USD/JPY Vulnerable Below 155.00
Bearish Bias Below Key Support
From a technical perspective, USD/JPY continues to struggle below the 100-hour Simple Moving Average (SMA), reinforcing a near-term bearish bias. A decisive break below the 155.00 psychological mark could accelerate losses toward the monthly low near 154.35, followed by the 154.00 round figure.
Resistance Levels to Watch
On the upside, the 156.00 region, aligned with the 100-hour SMA, remains an immediate resistance zone. A sustained move above 156.10–156.15 could trigger short-covering, opening the door toward 157.00, followed by 157.45. Beyond that, the 158.00 multi-month high, last seen in November, would come into focus.
Conclusion: Policy Divergence Keeps Yen in the Driver’s Seat
In summary, the Japanese Yen remains well-supported by hawkish BoJ expectations, improving domestic fundamentals, and safe-haven flows, while the US Dollar continues to suffer from dovish Fed pricing and political uncertainty.
As long as this monetary policy divergence persists, the path of least resistance for USD/JPY appears tilted to the downside, with 155.00 serving as a critical inflection point.
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