USD/JPY Price Forecast: Consolidation Breakout Starts New Upward Leg

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

The US Dollar Index (DXY) reaches 103.08, a fresh 18-month high. Despite that advance, the Japanese Yen (JPY) posts a marginal gain against the US Dollar (USD). The Asia-Pacific currency leads its major peers on Thursday.

Near 159.65 at the time of writing, USD/JPY is slightly lower. It nevertheless remains close to Wednesday's 159.94 peak, its highest level in over two months.

October's stronger-than-forecast Producer Price Index (PPI) figures support the Japanese currency. The data are expected to bolster hopes that the Bank of Japan (BoJ) will deliver further interest rate increases in the near term.

Headline PPI rose 0.7% month on month, exceeding the 0.3% forecast after a 0.2% decline in producer-level inflation in September. On an annualised basis, growth unexpectedly accelerated to 7.1% from the previous reading of 6.8%. Expectations had pointed to a more moderate increase of 6.5%.

Concerns about aggressive monetary tightening ahead by the Federal Reserve (Fed) are also driving US Dollar outperformance.

For Rabobank analysts, the market reaction to recent hawkish remarks by Fed officials signals more than a change in rate expectations. Those comments, “including those from Waller that put the risk of a 50-bps rate hike on the table,” have left the market “fully priced for a December rate hike,” they note. Crucially, the response came “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 analysts also believe that “the results of last week’s mid-term elections suggest less reason to expect pressure from the White House,” strengthening the view that significant political interference need not prevent the central bank from tightening policy.

Rabobank sums up its assessment: “In short,” “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 analysts contend that this shift “should remove a significant potential hurdle from the outlook for the USD.”

159.69: USD/JPY Technical Outlook

At 159.69 on the daily chart, USD/JPY retains a bullish near-term bias above its 20-day exponential moving average (EMA) of 158.34. The advance following last week's pullback is continuing. With the EMA positioned below the spot price, underlying demand appears firm. A Relative Strength Index (14) reading of 61.66 remains positive but below overbought territory, suggesting constructive upward momentum that does not yet look stretched.

The 20-day EMA at 158.34 provides initial downside support. Buyers are likely to defend the recent breakout area there if prices correct. Holding above this average would keep the technical outlook tilted towards further gains. A daily close beneath it, however, would indicate weakening bullish control and create scope for a deeper retracement.

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