USD/JPY Price Forecast: Targets breakout from seven-week consolidation

• Near 159.00, USD/JPY retains the previous day’s losses despite the US Dollar’s outperformance.
• A larger Fed interest rate increase in December has also emerged as a market expectation.
• Thursday’s release of Japan’s October PPI figures is in focus for investors.

October’s faster rise in US inflation has fuelled concerns that the Federal Reserve (Fed) could opt for a larger interest rate increase at its December meeting, supporting the US Dollar (USD). Against that backdrop, the Japanese Yen (JPY) remains weak on Wednesday, with USD/JPY trading around 159.00, close to its highest level in almost seven weeks.

At the time of writing, a 0.1% gain puts the US Dollar Index (DXY) near 102.32. The index tracks the Greenback against a basket of six major currencies.

With inflationary pressures in the United States (US) accelerating in October, financial markets have begun to price in a 50 basis points (bps) rate rise from the Fed at its December meeting.

Stronger US inflation complicates the Fed’s policy choices

The latest figures mark another setback for the disinflation narrative. As Rabobank economists observe, “yesterday’s US CPI print came in hotter than expected at 0.4% m-o-m headline vs. a consensus of 0.3% and 0.3% core vs. a 0.2% market view,” highlighting the renewed challenge.

To illustrate the concern, Rabobank cites the “usually dovish Fed voter Goolsbee, ‘it’s another distressing report, borderline disturbing. We’ve been hoping to get progress.’” Rather than a further easing of price pressures, the bank identifies “an acceleration in grocery and food inflation, persistent housing/shelter price pressure, and a delayed pass-through from earlier energy shocks feeding into medical care, household furnishings, and other daily expenses,” reinforcing worries that underlying inflation remains firmly entrenched.

In Japan, attention turns to Thursday’s October Producer Price Index (PPI) release. Producer prices are estimated to have risen 0.3% month on month (MoM), reversing September’s decline of the same magnitude.

USD/JPY Retains a Bullish Technical Bias

At 158.88 on the daily chart, USD/JPY is trading near the upper boundary of a consolidation range that has lasted almost seven weeks. A position above the 20-day Exponential Moving Average (EMA) at 158.10 keeps the near-term outlook bullish. As the pair pulls further away from this dynamic support, the Relative Strength Index (RSI) is climbing within positive territory at 57.38. That combination suggests buyers remain in control, although the market does not yet look overstretched.

The first downside support lies at the 20-day EMA of 158.10. A daily close below that level would suggest that upward pressure is fading, opening the way for a deeper correction towards the consolidation range’s lower boundary near 156.00. Conversely, a decisive break above 159.00 would signal a fresh upward leg, with key resistance at 160.00 followed by September’s high of 160.39.

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