Japanese Yen holds steady against US Dollar as focus shifts to BoJ policy

• 157.80 remains the Japanese Yen’s trading level against the US Dollar. The BoJ policy decision is next in focus.
• A hold at 1.25% is expected from the BoJ.
• Tokyo CPI and major US economic releases are also on investors’ radar.

157.80 is the Japanese Yen’s (JPY) approximate level against the US Dollar (USD). Trading is little changed in Thursday’s European session. With attention turning to Friday’s Bank of Japan (BoJ) monetary policy announcement, USD/JPY remains in consolidation.

December Yen outlook takes priority as BoJ meeting seen as a holding event

Year-end policy prospects are taking priority for investors, according to Commerzbank analysts. They say markets envisage “the overnight rate remaining at 1.25%, and none of the economists surveyed by Bloomberg expects a hike this week,” shifting attention beyond the immediate decision.

December signals matter more for currency markets, Commerzbank argues: “the more important question will therefore be what the BoJ signals about December.” The analysts note that “markets currently price an around 80% probability of a rate hike by then, in line with our own expectation that the BoJ will raise the policy rate to 1.5%.” Their assessment is that “recent BoJ communication, alongside the economic backdrop, increasingly suggests that the next step towards policy normalization is approaching.”

An unexpected source of “additional support for this view”, Commerzbank says, is the BoJ’s semi-annual financial system risk report. The analysts call it “hardly the most obvious source of monetary policy signals.” Nevertheless, they emphasise that “the report suggests that higher rates should remain manageable for Japan's financial system.” More specifically, “in its stress test, the BoJ finds that even a rise in the policy rate to 2% should not pose major problems for Japanese banks and companies.” They also point out that “the increase to 1.25% has already been absorbed without significant disruption, as has the rise in longer-term government bond yields.”

The report should not be read as policy guidance, Commerzbank cautions: “the BoJ stresses that the 2% assumption is not a forecast but merely part of the stress test scenario.” The analysts nonetheless consider that “the message for FX markets is noteworthy: financial stability does not appear to be a binding constraint on further policy normalization.” Although “Friday itself may therefore provide only limited fresh momentum for the yen,” their conclusion is that “our structurally constructive view on the Japanese currency remains intact.”

Before Friday’s BoJ decision, investors will receive October’s Tokyo Consumer Price Index (CPI) figures. The Tokyo CPI measure excluding fresh food is forecast to ease to 2.6% year-on-year (YoY), compared with 2.7% in September.

Ahead of the United States (US) flash Q3 Gross Domestic Product (GDP) figures and September Personal Consumption Expenditure (PCE) Price Index release at 12:30 GMT, the US Dollar is edging higher.

At the time of writing, a 0.1% gain puts the US Dollar Index (DXY) near 102.20. The index tracks the Greenback against six major currencies.

TD Securities expects the forthcoming figures to confirm that "Q3 GDP [will] show robust underlying growth," adding that "GDP growth [having] picked up in Q3 to 2.5% from 2.2% previously with underlying activity remaining robust." Its assessment is that "consumption likely remained resilient while decelerating slightly," while "fixed investment [was] also strong in large part due to AI." Against those strengths, the firm expects that "net exports likely acted as a major drag on GDP growth while being partially offset by a rebound in inventories," implying solid overall growth but an uneven picture below the headline.

Wednesday brought a correction in the US Dollar following the Federal Reserve’s (Fed) monetary policy announcement. As anticipated, the Fed left interest rates unchanged within the 3.75%-4.00% range.

USD/JPY: Technical Outlook

At 157.87 on the daily chart, USD/JPY remains above its 20-period exponential moving average (EMA) of 157.76. This provides immediate trend support, maintaining a mildly bullish near-term bias. A Relative Strength Index (RSI) reading around 51 points to neutral to slightly positive momentum. Buyers therefore hold a small edge, without the pair entering overbought territory.

The first downside support lies near 157.76, where the 20-day EMA is clustered. A daily close below that level would suggest a deeper correction towards recent lows. Conversely, holding above the moving average on a closing basis is likely to preserve the broader positive tone. That would leave room to test higher levels, with no nearby technical resistance yet defining those targets.

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