Japanese Yen remains depressed near weekly low against USD as bulls await BoJ decision

The Japanese yen (JPY) remains on the defensive against its US counterpart for the second day in a row and pushes the USD/JPY pair to the 156.00 area, or the upper border of the weekly range, during the early European session on Thursday. Concerns about Japan’s deteriorating financial situation, coupled with some trade repositioning ahead of the central bank’s main event, are turning out to be major factors undermining the Japanese yen. However, growing acceptance that the Bank of Japan will raise interest rates on Friday and a weaker risk tone could help limit losses for the safe-haven Japanese yen.

JPY bears may refrain from placing aggressive bets and choose to wait for further signals on the Bank of Japan’s future policy path. Therefore, the focus will be on the press conference that Bank of Japan Governor Kazuo Ueda will hold after the meeting. Meanwhile, strong expectations for further interest rate cuts by the US Federal Reserve (Fed) are keeping a lid on the US Dollar (USD) recovery attempt and could act as a headwind for the USD/JPY pair. Moreover, the divergent policy outlook of the Bank of Japan and the Fed warrants some caution before taking prepared positions for any material depreciation in the value of the low-yielding Japanese yen.

The Japanese Yen is under pressure due to some repositioning ahead of the Bank of Japan risk event

• Traders are cautious and refraining from placing strong directional bets on the Japanese yen before the start of the two-day Bank of Japan meeting on Thursday. The central bank will announce its policy decision on Friday and is widely expected to raise interest rates to 0.75%, or their highest level in three decades.
• Furthermore, recent reports indicate that the Bank of Japan is likely to keep its pledge to continue raising interest rates, but stresses that the pace will depend on how the economy reacts to each hike. Hence, BOJ Governor Kazuo Ueda’s comments will be looked to for signals on how far the central bank can raise interest rates.
• Investors were selling short-term Japanese government bonds amid hawkish expectations from the Bank of Japan. In addition, reports about the amount of government spending next year have raised concerns about Japan’s deteriorating financial health and pushed the yield on Japan’s benchmark 10-year government bond to its highest level since June 2007.
• The resulting narrowing in the yield spread between Japan and other major economies is acting as a tailwind for the Japanese yen during the Asian session on Thursday. On the other hand, the US dollar maintains overnight recovery gains and supports USD/JPY heading into the central bank’s main event.
• However, the US dollar’s upside appears to be limited amid the Fed’s dovish outlook. Traders have been calculating the possibility of the US central bank cutting interest rates two more times in 2026. Apart from this, speculation that the new Trump-aligned Fed head will be dovish is preventing any significant rise in the value of the US dollar.
• Traders also appear hesitant to place aggressive bets and are choosing to wait for the latest US consumer price inflation numbers, which are due later during the North American session. Important data will be looked for further signals on the path of Fed rate cuts, which should provide some momentum to the US dollar and USD/JPY.

USD/JPY bulls may wait for a sustained move above 156.00 before placing new bets

An overnight break of the 100 hourly simple moving average (SMA), combined with positive oscillators on the hourly and daily charts, supports the case for further upward movement in the USD/JPY pair. However, it would still be wise to wait for sustained strength beyond the weekly high, around the 156.00 mark, before placing new bullish bets. Spot prices may then extend positive momentum towards the monthly high, around the 157.00 area, touched last week, with some intermediate hurdle near the 156.55-156.60 area.

On the flip side, the resistance turned support 100-hour SMA, currently located around the 155.30 area, could protect the immediate downside ahead of the 155.00 psychological mark. A convincing break below the latter could trigger some technical selling and expose the 154.35-154.30 area, or the monthly swing low touched on December 5. This is followed by the 154.00 mark, which, if broken, will be seen as a new catalyst for bearish traders and paves the way for deeper losses.