159.00 cleared: USD/JPY climbs as Japanese Yen slumps to ten-week low

• 159.00 resistance cleared as USD/JPY hits a ten-week high.
• Further Fed rate hikes look more likely after US inflation exceeds forecasts.
• Additional BoJ tightening expectations build, but the Japanese Yen stays under pressure.

USD/JPY is up 0.54% on Wednesday. At the time of writing, the pair trades around 159.65, a ten-week high, extending its bullish run. A decisive break through resistance at 159.00 comes as the US Dollar (USD) regains strength, with investors increasingly expecting further interest rate increases from the Federal Reserve (Fed).

Tuesday's stronger-than-forecast US Consumer Price Index (CPI) release and hawkish comments from Fed Governor Christopher Waller have fuelled the US Dollar's advance. Waller cautioned that a “half-point Fed rate hike may be needed in December” if monthly core inflation stayed “around 0.3% or higher.” The CPI figures that followed put October core inflation at 0.3%, against a 0.2% forecast. Headline inflation rose 0.4%, also exceeding expectations of 0.3%.

Fed rate expectations were sharply repriced following these developments. Markets now price an 85% probability of a 25-basis-point increase in December, according to the CME FedWatch Tool, leaving a 15% probability of a larger 50-basis-point hike.

The more significant shift concerns January: the probability of a further 25-basis-point hike has jumped to 60% from just 19% before Tuesday's repricing. That change adds to the US Dollar's appeal.

Rising expectations of another December rate hike by the Bank of Japan (BoJ) have offered little relief to the Japanese Yen (JPY). In its October Summary of Opinions, the central bank highlighted broader support for additional monetary tightening. Policymakers nevertheless remain split on how quickly to proceed.

An increasingly wide monetary policy gap still favours the US Dollar. At the same time, the approach of USD/JPY to the psychologically significant 160.00 level heightens the possibility that Japanese authorities could intervene.

160 back in sight for Yen as Dollar strength sustains BoJ intervention risk

With spot currently close to levels sensitive to intervention, MUFG analysts observe that the Yen “weakened sharply yesterday in response to the US inflation data” and that “USD/JPY has returned closer to the 160-level, above which intervention becomes a much greater prospect.” ING strategists also highlight a “broadly strong dollar,” although they “increasingly think investors will be looking to acquire cheap yen should USD/JPY push above 160 again.” In ING's assessment, “all of the above can feed into the Bank of Japan's view that inflation is now stable at 2.00% and its accommodative monetary policy can be reined in,” lending weight to the view that policy dynamics may slowly become more supportive of the Yen over the medium term.

159.68: USD/JPY technical outlook

At 159.68 on the four-hour chart, USD/JPY maintains a bullish near-term outlook. The price sits well above the 100-period and 200-period simple moving averages (SMAs), which converge around 157.90, and remains above nearby horizontal support at 159.00. Meanwhile, the Relative Strength Index (RSI) has entered overbought territory near 72, signalling robust upward momentum that may be overstretched.

Resistance first comes into view at 159.80, followed by the more substantial hurdle at 160.40, where buyers may start taking profits. Support initially lies at 159.00. Below that, the 200-period SMA at 157.94 and the 100-period SMA at 157.91 strengthen a wider demand area above horizontal support at 157.50.

(An AI tool assisted in preparing this article's technical analysis. Find out more.)