The Japanese yen (JPY) extended its advance against a broadly weaker US dollar (USD) for a third consecutive session on Friday, climbing to a near three-week high in early European trading. Markets increased their expectations for an imminent Bank of Japan (BoJ) rate hike after Governor Kazuo Ueda’s comments earlier this week, helping offset the sharp and unexpected decline in Japan’s Household Spending for October – the fastest drop in nearly two years – and supporting further JPY strength
Expectations for BoJ tightening, combined with a reflationary fiscal push under new Prime Minister Sanae Takaichi, continue to lift Japanese government bond (JGB) yields, adding to the yen’s appeal. The USD, meanwhile, is struggling to capitalize on Thursday’s rebound from late-October lows amid persistent dovish Federal Reserve (Fed) expectations, pushing USD/JPY below the mid-154.00s. Traders now await key US inflation data for fresh direction.
Japanese yen bulls retain control amid firming BoJ rate hike expectations
Fresh data from Japan’s Internal Affairs Ministry showed Household Spending falling 2.9% YoY in October 2025, well below expectations for a 1.0% increase and reversing September’s 1.8% rise. This marked the first decline since April and the sharpest since January 2024, raising concerns about Japan’s growth outlook.
However, the yen remains supported by rising expectations of BoJ policy normalization. Governor Ueda signaled on Monday that policymakers will consider the pros and cons of raising rates at the December 18–19 meeting—one of the clearest indications yet that a rate hike is on the table.
Meanwhile, Prime Minister Takaichi’s expansive stimulus program, financed through increased debt issuance, has driven a sharp rise in long-term JGB yields over the past month. The 10-year yield surged to its highest level since 2007, the 20-year reached levels unseen since 1999, and the 30-year climbed to a record high. This narrowing rate differential with other major economies heightens the risk of carry-trade unwinding, which further supports the JPY.
Still, elevated yields also imply higher borrowing costs, stoking concerns about Japan’s fiscal health and limiting the yen’s upside potential.
In the US, the dollar attempted a modest rebound on Thursday, bolstered by stronger-than-expected labor data. Challenger, Gray & Christmas reported that planned job cuts dropped 53% to 71,321 in November from 153,074 in October—October’s figure being the highest for that month since 2003.
Additionally, Initial Jobless Claims fell by 27,000 to 191,000 for the week ending November 29, the lowest level in more than three years, easing concerns over weakening labor conditions and triggering some USD short-covering.
Despite the positive data, the USD remains under pressure as markets continue to anticipate another Fed rate cut at next week’s meeting. This has kept USD/JPY from staging a meaningful recovery after Thursday’s three-week low and reinforces the bearish outlook.
Traders remain cautious, however, preferring to wait for the US Personal Consumption Expenditures (PCE) Price Index before initiating new positions. The data will be crucial for shaping expectations for the Fed’s rate-cut path and guiding USD direction.
USD/JPY bears look to extend the fall below mid-154.00s
Repeated failures to reclaim the 100-hour Simple Moving Average (SMA) and the clean break below the 155.00 psychological mark support the bearish bias in USD/JPY. Technical indicators on intraday charts remain aligned to the downside, suggesting further depreciation, though neutral daily oscillators call for some caution.
Additional downside could find support near Thursday’s swing low around the mid-154.00s; a decisive break below this area may accelerate losses toward the 154.00 handle.
On the upside, any recovery attempt is likely to meet strong resistance near 155.40—the 100-hour SMA. A sustained breakout above that level could trigger short-covering, allowing the pair to retest 156.00. Continued momentum may open the door toward 156.60–156.65 and eventually the 157.00 round figure.
