USDJPY begins December by sliding 0.5% in reaction to the latest comments from the Bank of Japan (BOJ) Governor, who for the first time in months clearly suggested the possibility of an interest rate hike at the BOJ’s December meeting.
USDJPY broke below the 10-day exponential moving average (EMA10; yellow) today, the level where the previous correction of the uptrend initiated in October had originally stalled. The pair is currently testing the 50% Fibonacci retracement of the last upward wave, although the key level for a true trend reversal remains 154.550. This level coincides with (1) the second-to-last resistance zone, (2) the hammer candle that preceded the latest rebound, (3) the 30-day EMA (light purple), and (4) the 61.8% Fibonacci retracement. Source: xStation5
What is shaping USDJPY today?
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Bank of Japan Governor Kazuo Ueda said during today’s remarks that “the BOJ is considering the pros and cons of raising interest rates at the upcoming meeting.” Until now, Ueda had only emphasized that any further tightening would depend on inflation and economic activity evolving in line with projections. The BOJ Governor also added that the impact of tariffs on Japan’s economy remains marginal, effectively ending a period in which “uncertainty” dominated the narrative.
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Inflation continues to keep real interest rates below zero, and the intensifying price pressure should generate more hawkish sentiment within the BOJ despite pro-growth pressure from Prime Minister Sanae Takaichi. According to the latest data, Tokyo inflation remained at 2.8%, above the expected decline to 2.7%. In addition, today’s PMI report for Japan highlighted the fastest rise in input prices in five months, which may soon be passed on to consumers.
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The market-implied probability of an interest rate hike in Japan has risen to 60% for December and 90% for January. The immediate reaction is also visible in the bond market, where yields on 10-year Japanese government bonds reached a new high at 1.873%.
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