Japanese Yen Weakens Despite Growing Expectations of BoJ Rate Hike
December 18, 2025 — The Japanese Yen (JPY) continued to weaken against the US Dollar (USD) for the second consecutive day, with the USD/JPY currency pair reaching the 156.00 level during early European trading on Thursday. This movement comes amid a cautious market environment ahead of the upcoming Bank of Japan (BoJ) policy meeting, where an interest rate hike is widely anticipated.
Market Dynamics and BoJ Outlook
Investors are showing restraint in placing aggressive bets on the Yen due to uncertainty surrounding the BoJ’s forthcoming policy decision. The central bank is expected to announce on Friday a rate increase to 0.75%, marking the highest level in approximately 30 years. Reports suggest that while the BoJ is prepared to continue raising rates, the pace of hikes will likely depend on economic conditions and their impact on inflation.
BoJ Governor Kazuo Ueda’s post-meeting press conference will be a key event for traders looking for indications of the bank’s future monetary policy direction. Market participants are watching closely for any hawkish or dovish cues that could influence the Yen’s trajectory.
Fiscal Concerns and Yield Movements
Concerns about Japan’s deteriorating fiscal health have contributed to the Yen’s subdued performance. Recent government spending plans have raised worries among investors, prompting sales of short-term Japanese government bonds. This pressure has driven yields on the benchmark 10-year Japanese Government Bond (JGB) to their highest level since June 2007. The rising bond yields have somewhat narrowed the yield gap between Japan and other major economies, offering limited support to the Yen amid overall risk-off sentiment. Meanwhile, the US Dollar has maintained its overnight recovery momentum, sustaining upward pressure on the USD/JPY pair.
Federal Reserve and US Dollar Influence
Despite the USD’s recent gains, expectations of dovish policy from the US Federal Reserve have tempered the dollar’s advance. Traders have priced in the possibility of two additional rate cuts by the Fed in 2026, which has constrained broader US Dollar strength. Speculation that the Fed chair aligned with former President Donald Trump may pursue a more accommodative stance has further limited USD appreciation.
Market participants are also awaiting the release of crucial US Consumer Price Index (CPI) data later in the day for signals regarding the Fed’s future rate path—data which may provide additional direction to the USD and the USD/JPY pair.
Technical Outlook for USD/JPY
The USD/JPY pair recently broke above its 100-hour simple moving average (SMA), supported by positive momentum indicators on hourly and daily charts. However, analysts caution that a sustainable move beyond the current weekly high near 156.00 is necessary before new bullish positions are likely to be committed.
If the pair manages to hold above 156.00, it could test resistance near the monthly high around 157.00, with an intermediate obstacle between 156.55 and 156.60. Conversely, a failure to sustain gains may see immediate support expected near the 100-hour SMA around 155.30, and psychological support at 155.00. A break below these levels could trigger technical selling and push the pair toward 154.35-154.30, the low from early December.
Looking Ahead: BoJ Policy Meeting
The BoJ’s monetary policy meeting, scheduled to conclude on Friday, remains the pivotal event for the Japanese Yen. Governor Kazuo Ueda’s press conference following the meeting will likely provide crucial insights into the bank’s approach to further rate hikes and economic projections.
With markets currently balancing expectations of BoJ tightening against Fed rate cuts and fiscal concerns in Japan, traders are adopting a cautious stance in the lead-up to the announcement.
Summary
- Japanese Yen weakens, USD/JPY rises near weekly highs around 156.00.
- BoJ expected to hike interest rates to 0.75% on Friday for the first time in decades.
- Fiscal worries and rising JGB yields put pressure on the Yen.
- Fed dovish outlook limits USD strength, capping USD/JPY upside.
- Market awaits BoJ Governor Ueda’s comments for clues on future monetary policy.
- US CPI data later today may influence near-term USD and USD/JPY price action.
- Technical resistance at 156.00–156.60; support at 155.30 and 155.00. As the market awaits these developments, cautious trading is expected to persist, with major currency movements hinging on central bank policy signals and economic data releases.
For continued updates on the BoJ policy decision, USD/JPY movements, and global financial markets, stay tuned.