USD/JPY drifted higher amid rising U.S. yields and earthquake news in northeast Japan, with markets pricing in a 90% chance of a BoJ 25bp hike next Friday, while near-term trends remain USD-supportive. Pair was last seen at 156.16 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Near-term USD/JPY supported by worries about a hawkish Fed, dovish BoJ

"USD/JPY drifted higher overnight, in reaction to higher UST yields and on reports of 7.5 magnitude earthquake in northeast Japan. Markets have priced in 90% probability of 25bp hike at the MPC next Friday (19 December). While a hike in December maybe a done deal, the question lies in the path of policy normalization – if it will be another long wait for the next hike."

"Any meaningful recovery in JPY would require not just the BoJ to follow through with stronger guidance but also for policymakers to demonstrate fiscal prudence while a softer USD, US rates environment would be supportive. But near term, worries of hawkish Fed cut and dovish BoJ hike are supportive of USD/JPY in the near term."

"Daily momentum is mild bearish but decline in RSI moderated. Key support at 155.70 levels (21 DMA), 154.40 (76.4% fibo) and 151.60 (61.8% fibo retracement of 2025 high to low, 50 DMA). Resistance at 156.70, 157.90 and 158.87 (previous high in 2025)."

(This story was corrected on December 9 at 10:58 GMT to say "Near-term USD/JPY supported by worries about a hawkish Fed, dovish BoJ" instead of "Near-term USD/JPY supported by hawkish Fed, dovish BoJ")