USD/JPY Price Forecast: Bulls not ready to give up amid BoJ rate-hike uncertainty

• USD/JPY consolidates in a range below a multi-month peak touched last week.
• Wavering BoJ rate hike expectations undermine the JPY and support the pair.
• The Fed’s hawkish stance backs elevated US bond yields and benefits the USD.

The USD/JPY pair struggles to capitalize on the previous day's positive move and oscillates in a narrow trading band, around the 157.00 mark through the early part of the European session on Tuesday. Spot prices, however, remain close to a multi-month top touched last Friday and seem poised to prolong the monthly uptrend amid wavering expectations about more interest rate hikes by the Bank of Japan (BoJ).

The Japanese central bank offered few clues on how soon it could push up borrowing costs at the end of the December policy meeting. Moreover, BoJ Governor Kazuo Ueda last week opened up the possibility of waiting longer for the next hike and said that the central bank will need a little bit more info on wage trends. Adding to this, Minutes from the October BoJ policy meeting released earlier today stressed the need for caution amid domestic and global uncertainties. That said, broadening inflationary pressures in Japan might force the BoJ to hike interest rates again early in 2025. 

Data released last Friday showed that Japan's core inflation accelerated in November and left the door open for a potential BoJ rate hike in January or March. Meanwhile, the Federal Reserve (Fed) signaled that it would slow the pace of interest rate cuts next year and tempered expectations for a sharp narrowing of the US-Japan rate differential. This, in turn, is seen as another factor undermining the lower-yielding Japanese Yen (JPY). Moreover, the Fed's hawkish shift assists the US Dollar (USD) in holding steady near a two-year high and validates the positive outlook for the USD/JPY pair. 

However, speculations that Japanese authorities might intervene to prop up the domestic currency could limit deeper JPY losses. In fact, Japan's Finance Minister Katsunobu Kato warned against excessive foreign exchange moves and reiterated that the government is ready to act to stabilise the domestic currency. Adding to this, geopolitical risks and trade war fears hold back traders from placing aggressive bearish bets around the safe-haven JPY. This, in turn, keeps a lid on any further gains for the USD/JPY pair amid relatively thin trading volumes on Christmas Eve. 

USD/JPY daily chart

Technical Outlook

From a technical perspective, the 157.45-157.50 area could act as an immediate hurdle ahead of the multi-month peak, around the 158.00 neighbourhood. A sustained strength beyond will be seen as a fresh trigger for bullish traders and pave the way for additional gains amid positive oscillators on the daily chart. The USD/JPY pair might then aim to surpass the 158.45 intermediate hurdle and reclaim the 159.00 mark. The momentum could extend further towards the 160.00 psychological mark en route to the 160.50 area, which coincides with the top end of a multi-month-old ascending channel.

On the flip side, weakness below the 157.00 round figure now seems to find decent support near the 156.65 horizontal zone, below which the USD/JPY pair could slide to the 156.00 mark. Any further decline could be seen as a buying opportunity near the 155.50 region and seems limited near the 155.00 psychological mark. The latter should act as a strong base for spot prices, which if broken decisively might shift the near-term bias in favor of bearish traders.