USD/JPY Price Forecast: Breaks out of consolidation to begin a new upward leg

• USD/JPY eases towards 159.65 as the Japanese Yen leads its peers.
• December PPI growth in Japan continues to exceed expectations.
• With a December Fed rate rise looking certain, the USD/JPY outlook stays firm.

A fresh 18-month high of 103.08 for the US Dollar Index (DXY) on Thursday has not prevented the Japanese Yen (JPY) from edging higher against the US Dollar (USD). The Asia-Pacific currency is outperforming its major counterparts during the session.

At the time of writing, a slight decline has taken USD/JPY towards 159.65. The pair nevertheless remains near Wednesday’s high of 159.94, its strongest level in over two months.

Stronger-than-forecast October Producer Price Index (PPI) figures are supporting the Japanese currency, as the data is expected to bolster hopes of further near-term interest rate rises from the Bank of Japan (BoJ).

Headline PPI rose by 0.7% month on month, exceeding the 0.3% forecast and following a 0.2% fall in producer prices in September. The annualised increase unexpectedly accelerated to 7.1% from the previous reading of 6.8%, rather than moderating to 6.5% as anticipated.

For its part, the US Dollar is outperforming as concerns grow over aggressive monetary tightening by the Federal Reserve (Fed) in the period ahead.

The reaction to recent hawkish statements by Fed officials goes beyond a change in interest rate expectations, according to analysts at Rabobank. They cite comments “including those from Waller that put the risk of a 50-bps rate hike on the table,” noting that the market is now “fully priced for a December rate hike,”. Crucially, they say, the remarks were received “with no real speculation that the Fed would be pressured by political forces not to raise rates.”

Concerns over the Fed’s credibility have receded, Rabobank observes, noting that “since Fed Chair Warsh surprised the market with a hawkish position at Jackson Hole in August, fears about diminished Fed credibility have dissipated.” The analysts also believe that “the results of last week’s mid-term elections suggest less reason to expect pressure from the White House,” supporting the view that the central bank can tighten policy without substantial political interference.

Rabobank sums up its assessment: “In short,” it concludes, “markets have inferred that last week’s mid-term election result suggests that the issue of Fed credibility is likely to be diminished over the remainder of Trump’s term.” This development, the analysts argue, “should remove a significant potential hurdle from the outlook for the USD.”

USD/JPY Retains a Bullish Technical Bias

Trading at 159.69 on the daily chart, USD/JPY retains a bullish short-term bias while the spot price remains above its 20-day exponential moving average (EMA) of 158.34. Gains are extending from last week’s pullback, with the EMA positioned beneath the price suggesting that underlying demand is still firm. At 61.66, the Relative Strength Index (14) remains in positive territory without reaching overbought levels. This points to favourable upward momentum that does not yet look overstretched.

The 20-day EMA at 158.34 provides the first support on a decline, with buyers likely to defend the recent breakout area if a corrective dip occurs. Further gains would remain favoured while USD/JPY stays above this average. A daily close beneath it, however, would indicate that bullish control is weakening and leave scope for a deeper retracement.

(The technical analysis of this story was written with the help of an AI tool. Know more.)