USD/JPY Slides From 157.80 as BoJ Signals 2026 Hikes, Eyes 156 Pivot
USD/JPY dipped back towards the 155.85 to 156 zone in the European session and retraced some of the gains it had made near 156.30.
Quick overview
- USD/JPY retraced to the 155.85 to 156 zone as the Japanese yen gained support from Bank of Japan officials advocating for gradual interest rate hikes.
- The BoJ's recent rate increase to 0.75% reflects tightening labor market conditions and inflation nearing the 2% target.
- In contrast, the US dollar remains stable as the Federal Reserve signals a cautious approach to future rate cuts, narrowing the policy gap with Japan.
- Traders are closely watching central bank actions, with potential volatility expected from upcoming FOMC minutes and BoJ rate decisions.
USD/JPY dipped back towards the 155.85 to 156 zone in the European session and retraced some of the gains it had made near 156.30. This move was in response to the Japanese yen getting more support. A few Bank of Japan officials made a point that interest rates in Japan are still pretty low compared with what they need to be & suggested that they should keep raising them at a gentle pace until 2026.
The BoJ’s decision to increase interest rates by 25 basis points to 0.75% in December wasn’t a huge surprise, but the way the officials explained why they were doing it is what matters. They reckoned that Japan’s labour market was tightening, and that wages and prices were changing in a way that called for further tightening.
Governor Kazuo Ueda acknowledged that inflation is now closer to the 2% target, which is making the case for more rate hikes.
Fed Caution Keeps Dollar in Check
Back in the States, the dollar wasnt making much headway. The Dollar Index was stuck around 98 as markets awaited the Federal Open Market Committee minutes. At the end of December, the Federal Reserve cut interest rates by 25 basis points to bring the range down to 3.50-3.75% and signalled that it expected to slow the pace of interest rate hikes. They actually pencilled in just one cut for 2026 after cutting three times in 2025.
This contrast between the BoJ tightening up and the Fed being pretty cautious has narrowed the policy gap that was actually supporting the USD/JPY pair early on in the year. This has actually led to an increase in demand for the yen, especially when US data is looking a bit softer or there isnt much appetite for risk.
USD/JPY Technical Picture: Consolidation Phase
If you look at the technical picture for USD/JPY on the 4-hour chart, it’s currently trading around 156 after a pretty sharp rejection from the 157.70-157.80 level. More recent candlesticks show smaller bodies and fairly mixed wicks, which suggests that market participants are a bit uncertain and not committing to anything.
Some key technical stuff to keep an eye on is:
- The rising trendline from early December is still intact.
- The 50-day EMA (exponential moving average) is hovering around 156, which is acting as a bit of short-term support for now.
- The 200-day EMA is below at 155.55, reinforcing the overall technical structure.
- There is key horizontal support at the 155.50 level with a deeper base at 154.50
- There is resistance coming in at 156.75, and then if that’s broken, a stronger level of resistance at 157.75
The RSI (relative strength index) is stuck in the 45-50 range, reflecting a pretty neutral momentum right now with room to go either way. Price compression between trend support and resistance levels can break out in a particular direction once the market shows some volatility.
What Traders Are Watching Next
The traders are in the hands of the central banks for now. The FOMC minutes could add some short-term volatility to USD/JPY, but the overall trend will depend on whether the BoJ follows through with additional rate hikes in 2026.
Trade Idea: If you see a confirmed break above 156.75, you could look to buy, targeting 157.75, with a stop-loss below 155.80.
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