USD/JPY Price Forecast: Post-BoJ surge back closer to multi-month top favors bulls

• USD/JPY rallies over 200 pips intraday after the BoJ’s decision to leave rates unchanged.
• The widening US-Japan rate differential contributes to driving flows away from the JPY.
• The risk-off mood fails to benefit the JPY or cap the pair despite subdued USD demand.

The USD/JPY pair surged past mid-156.00s, back closer to a multi-month peak touched in November after the Bank of Japan (BoJ) decided to keep interest rates unchanged in a nearly unanimous vote on Thursday. In the post-meeting press conference, BoJ Governor Kazuo Ueda reiterated that the central bank would continue to raise our policy rate if the economy and prices move in line with the forecasts. Ueda, however, noted that uncertainties surrounding Japan's economy, and prices remain high and that the central bank will need a little bit more info on wage trends. Adding to this, a lack of any signals about a potential interest rate hike during the first quarter of 2025 turns out to be a key factor that prompts aggressive selling around the Japanese Yen (JPY) and provides a strong intraday boost to the currency pair. 

Meanwhile, the Federal Reserve (Fed), as was expected, lowered its benchmark policy rate by 25 basis points on Wednesday to the 4.25%-4.50% range, marking the third rate cut since September. The so-called dot plot, however, indicated that policymakers see just two quarter-point rate cuts next year compared to four rate cuts forecasted in September. Furthermore, Fed Chair Jerome Powell, while addressing the post-meeting press conference, said that inflation remains somewhat elevated relative to the central bank’s 2% longer-run goal. The hawkish outlook lifts the yield on the benchmark 10-year US government bond to its highest level since May. The resultant widening of the US-Japan rate differential drives flows away from the lower-yielding JPY and contributes to the USD/JPY pair's strong move up. 

It, however, remains to be seen if bulls are able to capitalize on the momentum or opt to take some profits off the table amid the risk-off impulse, which tends to benefit the traditional safe-haven JPY. Against the backdrop of persistent geopolitical risks and trade war fears, the prospects for slower rate cuts by the Fed in 2025 tempers investors' appetite for riskier assets. This is evident from a sea of red across the global equity markets and could provide some respite to the JPY bulls. Traders now look forward to the US economic docket – featuring the release of the final US Q3 GDP print and the usual Weekly Initial Jobless Claims data – for short-term opportunities. The market attention will then shift to the US Personal Consumption Expenditure (PCE) Price Index, or the Fed's preferred inflation gauge on Friday.

USD/JPY daily chart

Technical Outlook

From a technical perspective, the multi-month peak, around the 156.75 area touched in November, could act as an immediate hurdle ahead of the 157.00 mark. Given that oscillators on the daily chart have been gaining positive traction and are still away from being in the overbought territory, some follow-through buying above the latter will be seen as a fresh trigger for bulls. The USD/JPY pair might then aim to surpass an intermediate hurdle near the 157.50-157.55 region and then aim to reclaim the 158.00 round figure for the first time since July 17.

On the flip side, any pullback below the 156.00 mark might now be seen as a buying opportunity and remain limited near the 155.45-155.40 horizontal support. A convincing break below, however, might prompt some technical selling and drag the USD/JPY pair below the 155.00 psychological mark, towards the Asian session low, around the 154.45 region. The latter should act as a pivotal point, which if broken decisively might shift the short-term bias in favor of bearish traders.