USD/JPY Price Forecast: Turns vulnerable below 200-day SMA amid trade war fears

• USD/JPY remains under heavy selling pressure as Trump’s tariff plans boost safe-haven demand.
• The USD struggles near the weekly low amid sliding US bond yields and further benefits the JPY.
• Break below 200-day SMA favors bears as the focus now shifts to important US macro releases.

The USD/JPY pair prolongs its weekly downtrend for the third straight day and drops to sub-152.00 levels, or its lowest level since November 6 during the early European session on Wednesday. Data released on Tuesday indicated a broadening service-sector inflation in Japan.  This comes on top of stronger Japanese consumer inflation figures, and Bank of Japan Governor Kazuo Ueda's hawkish remarks last week, and keeps the door open for another interest rate hike by the central bank. Moreover, investors remain worried about the economic impact of US President-elect Donald Trump's pledged tariffs, which could trigger trade wars. This, along with persistent geopolitical risks stemming from the protracted Russia-Ukraine war, continues to drive haven flows towards the Japanese Yen (JPY) and exert pressure on the currency pair. 

Russia used a hypersonic missile on Ukraine last week and is advancing at the fastest rate since the 2022 invasion. Furthermore, Ukraine reported the biggest Russian drone attack on its territory on Tuesday. Meanwhile, Ukraine is striking targets deep inside Russia with Western-supplied missiles, which, to a larger extent, offsets the de-escalation of the long-running Middle East conflict. In fact, US President Joe Biden announced that Israel and Lebanon have accepted a ceasefire deal to end fighting with Iran-backed group Hezbollah. Meanwhile, expectations that Scott Bessent, Trump's US Treasury secretary nominee, will restraint budget deficits drag the benchmark 10-year US Treasury yields to a fresh two-week low. This keeps the US Dollar (USD) depressed near the weekly low and benefits the lower-yielding JPY, contributing to the USD/JPY pair's fall. 

Meanwhile, minutes of the November FOMC meeting released on Tuesday revealed that policymakers were divided over how much farther they may need to cut rates and were uncertain about the direction of the economy. The minutes further showed that the Committee could pause its easing of the policy rate and hold it at a restrictive level if inflation remained elevated. Adding to this, the Conference Board reported that the US Consumer Confidence  Index climbed to 111.7 in November – the highest since July 2023 – from 109.6 in the previous month amid the post-US election optimism. Adding to this, worries that Trump's expansionary policies will boost inflation support prospects for a less dovish Fed. This, in turn, should help limit any further USD depreciating move and offer some support to the USD/JPY pair ahead of the crucial US macro data. 

The prelim (revised) US Q3 GDP print and the Personal Consumption Expenditure (PCE) Price Index will be released later during the North American session. The latter is the Fed's preferred inflation measure and will play a key role in influencing market expectations about the future rate-cut path. This, in turn, will drive the USD demand and provide some meaningful impetus to the USD/JPY pair. Apart from this, Wednesday's US economic docket also features Durable Goods Orders, Chicago PMI and Pending Home Sales data. 

Technical Outlook

From a technical perspective, a convincing break below the 152.00 mark, which coincided with the very important 200-day Simple Moving Average (SMA), could be seen as a key trigger for bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction and support prospects for a further depreciating move for the USD/JPY pair. Hence, a subsequent fall towards the monthly swing low, around the 151.30-151.25 region, en route to the 151.00 mark, looks like a distinct possibility. The downward trajectory could extend further towards the 150.20 area or the 38.2% Fibonacci retracement level of the September-November rally.

On the flip side, any attempted recovery might now confront some resistance near the 152.00 mark ahead of the 152.30 region and the 152.70-152.75 area. The latter represents the 23.6% Fibo. breakpoint, above which the USD/JPY pair could surpass the 153.00 round figure and test the next relevant hurdle near the 153.25-153.30 zone. Some follow-through buying has the potential to lift spot prices further towards the 154.00 mark. 

USD/JPY daily chart