The Japanese yen slumped for the second consecutive day, even as the BoJ delivered its interest rate decision. The USD/JPY pair rose to a high of 156, up sharply from this week’s low of 154.37.
Japanese yen falls after the BoJ interest rate hike
The USD to JPY exchange rate drifted upwards, even after the BoJ hiked the interest rate for the first time in eleven months. It pushed them to the highest level since 1995, continuing a trend that it started late last year.
Japanese stocks rose after the BoJ rate hike, with the Nikkei 225 Index and the Topix jumping by over 1%. Similarly, Japanese bond yields continued rising, with the 10-year hitting the key resistance level at 2%.
The USD/JPY exchange rate rose because the BoJ rate hike was already priced in by market participants. Indeed, the odds of a hike on Polymarket stood at 99% before the meeting. Most analysts were expecting the bank to hike as Kazuo Ueda had hinted.
The pair also jumped as investors waited for Kazuo Ueda’s press conference, where he will share more details on what the bank will do in 2026. In a note, an analyst from Eastspring said:
“Dollar-yen is higher because there’s no indication of more imminent hikes, and because Takata and Tamura issued ‘dissents’ on the price outlook even though the decision to hike was unanimous.”
US inflation and odds of interest rate cuts
The USD/JPY exchange rate also reacted to the latest US consumer inflation report on Thursday. A report by the Bureau of Labor Statistics (BLS) showed that the headline Consumer Price Index (CPI) dropped from 3% in October to 2.6% in November, the lowest figure in months.
The core CPI dropped from 3.1% in October to 2.7% in November this year. This trend will likely continue in the foreseeable future because of the performance in the energy sector.
Data shows that the price of crude oil has continued falling in the past few months, with Brent and the West of Texas Intermediate (WTI) dropping to $59 and $55, respectively.
Therefore, there is a possibility that the Federal Reserve and the Bank of Japan will continue to diverge in the coming year. Analysts expect the Fed to keep cutting interest rates, while the BoJ may deliver one or more hikes.
USD/JPY technical analysis
The daily timeframe chart shows that the USD/JPY exchange rate has been in a strong uptrend in the past few months.
It jumped from a low of 139.90 in April to the current 156.07. It has remained above the 50-day Exponential Moving Average (EMA).
The pair has remained above the Supertrend indicator and is slowly forming a bullish flag pattern. This pattern is made up of a vertical line and a descending channel, which has been in place for the past few weeks.
Therefore, the most likely scenario is where the USD/JPY exchange rate continues rising, with the next key target being the year-to-date high of 157.82. A move above that level will point to more upside, potentially to 160 in the next few months.
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