Forex

USD/JPY rises as market see a BoJ rate hike this week

Nikos Tzabouras Written by Nikos Tzabouras

USD/JPY Analysis

The Bank of Japan pointed to strong wage growth prospects for the next fiscal year in a report published on Monday, noting that "firms expected to raise wages in fiscal 2026 at about the same rates as in fiscal 2025, when high wage growth was realized" [1]. This signals continued momentum in salaries after a strong 2025, when Rengo, the country's biggest union, agreed with firms to a 5.46% wage increase. [2]

The news bolsters the case for a rate hike by the central bank on Friday, with Governor Ueda having laid the groundwork earlier in the month when he said that officials "will consider the pros and cons" of such action [3]. With wages expected to stay high, inflation consistently above 2%, and a recent deal with the US to lower tariffs, policymakers have a strong case for a third rate increase following the mid-2024 policy pivot.

In contrast, the US Federal Reserve cut rates last week [4] amid a weakening labour market and tariff headwinds, while maintaining its easing bias. Furthermore, the next Fed chair could adopt a more dovish stance than the incumbent and be better aligned with President Trump's preference for easier monetary policy.

These unfavourable policy dynamics weigh on USD/JPY, which is testing the 200-day EMA. A break below this pivotal support could negate the upside bias and leave the pair vulnerable to deeper pullbacks. However, the greenback remains in the driver's seat above this level and retains the ability to push towards the 2025 peak (157.90).

The Bank of Japan has maintained a gradual tightening stance, delivering just two rate increases in over a year. With the economy still facing high levies from the US and having shrunk by 2.3% in the third quarter, the steepest decline in two years, the BoJ is unlikely to shift away from its cautious approach.

Moreover, the US central bank may have a hard time delivering aggressive easing next year. Last week's decision featured two dissenters in favour of holding rates steady, while the dot plot suggests just one cut in 2026 [5]. The US economy remains resilient, while price pressures are still elevated and well above the Fed's target.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. With extensive experience in market analysis and a strong foundation in international relations, he brings a unique perspective to financial markets. Nikos emphasizes not only technical analysis but also on fundamentals and the growing influence of geopolitics on financial trends.

As a Senior Financial Editorial Writer, he delivers comprehensive and forward-looking insights across a wide range of asset classes, including equities, commodities, and currencies. His work explores how macroeconomic events, political developments, and global policies impact market dynamics, providing readers with a deeper understanding of both short-term movements and long-term trends.

References

1

Retrieved 15 Dec 2025 https://www.boj.or.jp/en/research/brp/rer/data/rerc251215.pdf

2

Retrieved 15 Dec 2025 https://www.jtuc-rengo.or.jp/activity/roudou/shuntou/2025/yokyu_kaito/kaito/press_no1.pdf

3

Retrieved 15 Dec 2025 https://www.boj.or.jp/en/about/press/koen_2025/data/ko251201a1.pdf

4

Retrieved 15 Dec 2025 https://www.federalreserve.gov/monetarypolicy/files/monetary20251210a1.pdf

5

Retrieved 01 May 2026 https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20251210.pdf

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