Japanese Yen refreshes three-week high vs USD; seems poised to appreciate further

The Japanese yen continues to outperform against the broadly weaker US dollar for the third day in a row and advances to its highest level in nearly three weeks during the early European session on Friday. Traders boosted their bets on an imminent interest rate hike by the Bank of Japan following Governor Kazuo Ueda’s comments earlier this week. This helps offset an unexpected decline in Japanese household spending, which fell at the fastest pace in almost two years in October, and is expected to support the Japanese yen.

Meanwhile, the prospect of a Bank of Japan policy tightening, combined with a reflationary push by new Prime Minister Sanae Takaishi, is keeping Japanese government bond yields higher and benefiting the low-yielding Japanese yen. On the other hand, the US dollar is struggling to benefit from an overnight recovery from its lowest level since late October amid dovish Fed outlook and pulling the USD/JPY pair below the mid-154.00 areas in the past hour. Traders are now looking to key US inflation data for fresh momentum.

JPY bulls maintain control amid strong expectations for a rate hike from the Bank of Japan

• Household spending fell 2.9% year-on-year in October 2025, data published by Japan’s Ministry of Internal Affairs on Friday showed, missing market expectations for a 1.0% rise and reversing a 1.8% gain in the previous month. This also marked the first decline since April and the fastest pace of decline since January 2024, raising concerns about the economic outlook.
• However, the Japanese yen remains ahead amid prospects of the Bank of Japan tightening monetary policy further. In fact, Bank of Japan Governor Kazuo Ueda said on Monday that the central bank will consider the pros and cons of raising interest rates at its December 18-19 meeting. This was the clearest signal yet of an imminent rate hike and supported the Japanese yen.
• In addition, Japanese Prime Minister Sanae Takaishi’s massive spending plan, which will be financed through the issuance of new debt, was a major factor behind the recent sharp rise in government bond yields over the past month. The yield on Japan’s 10-year government bond rose to its strongest level since 2007 on Thursday, while the yield on 20-year bonds reached a level not seen since 1999.
• Moreover, the yield on 30-year Japanese government bonds reached a record high, further narrowing the interest rate spread between Japan and other major economies. This increases the risk of carry trade unwinding and benefits the Japanese yen. However, higher bond yields mean higher borrowing costs, raising concerns about Japan’s financial situation and limiting the yen’s gains.
• The US dollar saw a modest rebound from a six-week low on Thursday and was supported by a pair of upbeat reports on the US labor market. In fact, global outsourcing firm Challenger, Gray & Christmas said planned job cuts fell 53% to 71,321 in November, from 153,074 the previous month, the highest October level since 2003.
• Additionally, the US Department of Labor reported that the number of Americans filing new claims for unemployment benefits fell by 27,000 to 191,000 in the week ending November 29. This represented the lowest level in more than three years, alleviating fears of a sharp deterioration in labor market conditions and prompting some US dollar short covering.
• Despite the supportive data, the US dollar is struggling to attract any follow-on buying amid growing acceptance that the Fed will cut borrowing costs again at next week’s policy meeting. This failed to help the USD/JPY pair register any meaningful recovery from the nearly three-week low hit on Thursday and supports the case for further losses.
• However, traders appear to be hesitant and are choosing to wait for the release of the US Personal Consumption Expenditures (PCE) price index before placing new directional bets. Crucial inflation data will play a major role in influencing expectations about the path of Fed rate cuts, which in turn will push the US dollar and provide some significant momentum for the USD/JPY pair.

USD/JPY bulls are looking to extend the decline below the mid-154.00 areas

The recent repeated failure to move back above the 100 hourly simple moving average (SMA) and overnight breakdown below the 155.00 psychological mark is playing into the hands of USD/JPY bulls. Moreover, the technical indicators on the hourly chart hold in the negative territory and support the case for further downward movement, although the neutral oscillators on the daily chart require some caution. Hence, any further intraday decline could find some support near the overnight swing low, around the mid-154.00 areas, below which spot prices could accelerate the decline towards the round 154.00 figure.

On the flip side, any meaningful recovery attempt will likely face a strong barrier near the 155.40 area, or the 100 hourly simple moving average. Sustained strength after that could trigger a short-covering move and allow USD/JPY to reclaim the 156.00 mark. Some subsequent buying should pave the way for further move up to the next relevant hurdle near the 156.60-156.65 area on the way to the round 157.00 figure.