On Thursday (December 19th) during the European trading session, the USD/JPY continued to rise sharply, with an increase of over 1%. As the market reacts to yesterday's Federal Reserve announcement and today's Bank of Japan announcement, bulls have identified a strong opportunity to push the USDJPY currency pair towards the resistance level of 156.68. After the Bank of Japan kept interest rates unchanged as expected, the yen came under pressure, reaching its highest level in nearly five months.

The Federal Reserve cautiously cuts interest rates

In December 2024, the Federal Reserve announced another 25 basis point interest rate cut, marking the third consecutive cut this year and lowering borrowing costs to the range of 4.25% -4.5%, as expected. The so-called dot plot shows that policy makers currently expect only two interest rate cuts in 2025, totaling 50 basis points, while the previous quarter's expectation was to cut interest rates by a full percentage point.

The Federal Reserve has also raised its GDP growth forecast for 2024 (2.5%) and 2025 (2.1%) (September forecast was 2%), while its GDP growth forecast for 2026 remains unchanged at 2%. Similarly, personal consumption expenditure inflation forecasts for 2024 (2.4% vs. 2.3%), 2025 (2.5% vs. 2.1%), and 2026 (2.1% vs. 2%) have also been revised upwards. The same trend also applies to core personal consumption expenditures, with predictions for 2024 (2.8% vs. 2.6%), 2025 (2.5% vs. 2.2%), and 2026 (2.2% vs. 2%). On the other hand, it is expected that the unemployment rate will decrease this year (4.2% vs. 4.4%) and 2025 (4.3% vs. 4.4%), while the forecast for 2026 remains at 4.3%.

The Bank of Japan maintains its expected interest rate unchanged

In contrast to the decision and expectation of the Federal Reserve to raise interest rates, the Bank of Japan has maintained interest rates at around 0.25% today. The market clearly sees that the Bank of Japan is hesitant to raise interest rates in December due to the possibility of negative outcomes. The minority government led by Japanese Prime Minister Shigeru Ishiba is currently negotiating with the opposition party. The opposition party warns against raising interest rates too early to ensure support for the next year's budget.

The Governor of the Bank of Japan is seeking a suitable timing for a third interest rate hike, as recent economic indicators indicate that Japan's inflation is in line with the Bank of Japan's forecast - a prerequisite for a rate hike.

Transaction Tip:

After the central bank completes its final decision of the year, the US dollar and Japanese yen are expected to move towards stronger upward levels, and it is not ruled out that they will soon reach a peak of 160.00.

USD/JPY Technical Analysis and Expectations:

From the daily chart above, it is clear that the USD/JPY will continue to be bullish, and there is a high possibility of a strong weekly closing. The recent rise has pushed the relative strength index towards overbought areas, but there is still room for the MACD indicator to rise before reaching its peak. The strongest expectation at present is that USDJPY will move towards the psychological resistance level of 160.00, near which investors often discuss Japan's intervention in the foreign exchange market to prevent the collapse of the yen.

In addition, this time Trump is fighting against countries that intervene in currency depreciation. Overall, the US dollar/yen is expected to maintain an upward trend until the release of GDP growth data and weekly unemployment claims in the United States. Finally, recent performance confirms the strength of our signals to buy USD/JPY from every downside level.