USD/JPY Price Forecast: Consolidation Breakout Sets a Fresh Upside Leg in Motion

• Japanese Yen outperformance nudges USD/JPY lower towards 159.65.
• December PPI growth in Japan continues to exceed expectations.
• With a December Fed rate hike appearing certain, the USD/JPY outlook stays firm.

Outperformance by the Japanese Yen (JPY) against its major currency counterparts marks Thursday’s trading. The Asia-Pacific currency also registers a modest gain against the US Dollar (USD), despite the US Dollar Index (DXY) reaching a fresh 18-month high of 103.08 during the session.

A slight decline leaves USD/JPY near 159.65 at the time of writing, still within reach of Wednesday’s high of 159.94, its highest level in over two months.

Supporting the Japanese currency, October’s stronger-than-forecast Producer Price Index (PPI) figures are expected to bolster expectations of further interest rate increases by the Bank of Japan (BoJ) in the near term.

Headline PPI rose 0.7% month-on-month, exceeding the 0.3% forecast after producer prices fell 0.2% in September. On an annualised basis, growth unexpectedly accelerated to 7.1% from the previous reading of 6.8%, rather than moderating to the projected 6.5%.

At the same time, concerns over aggressive monetary tightening by the Federal Reserve (Fed) in the period ahead are driving US Dollar outperformance.

For Rabobank analysts, the market reaction to recent hawkish remarks by Fed officials, “including those from Waller that put the risk of a 50-bps rate hike on the table,” reflects more than a change in interest rate expectations. With the market now “fully priced for a December rate hike,” they stress that the comments were received “with no real speculation that the Fed would be pressured by political forces not to raise rates.”

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

Summing up its assessment, Rabobank states: “In short,” followed by “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.” The bank argues that this shift “should remove a significant potential hurdle from the outlook for the USD.”

USD/JPY Technical Analysis: Can The Bullish Bias Hold?

Trading at 159.69 on the daily chart, USD/JPY retains a bullish short-term outlook while remaining above its 20-day exponential moving average (EMA) of 158.34. The recovery from last week’s pullback is continuing, with the EMA positioned below the price indicating that underlying demand remains solid. At 61.66, the Relative Strength Index (14) is in positive territory but below overbought levels, suggesting favourable upward momentum that does not yet look overstretched.

The 20-day EMA at 158.34 provides the first downside support, where buyers are likely to protect the recent breakout zone if a corrective decline occurs. Holding above this average would keep the technical outlook tilted towards additional gains. A daily close beneath it, however, would indicate weakening bullish control and leave scope for a deeper pullback.

(An AI tool assisted in preparing this story’s technical analysis. Learn more.)