Currency and other markets have just concluded an immense FOMC week, providing yet another change in stance from the Fed regarding next year’s monetary communication. However, the Federal Reserve is not the only central bank adjusting its rates. In between ECB and Bank of England meetings, the Bank of Japan is expected to hike rates for the first time since January 2025. We’ll see how USD/JPY shapes up ahead of the rate decision.
USD/JPY is known to be a volatile pair, driven not only by its geographical differences but also by fundamentally distinct characteristics, such as the significant US-Japan rate differential, the yen’s status as a safe-haven currency compared to the dollar’s status as the reserve currency, and all around the place fiscal policies.
Traders are looking to move away from the now priced-in themes of heavy fiscal dovishness from Japan, following the start of Sanae Takaichi's role as Prime Minister at the beginning of October 2025, which led to a consequent 7% up-move in USD/JPY.
With large stimulus now priced in, participants are largely awaiting to see how rate differentials will be reduced and if they will.
A fundamental driver of the pair since 2000 has been very low yields in Japan relative to its OECD peers. This differential widened even further after the 2022 rate hike cycles.
Still, as the Federal Reserve just cut its rates by 25 bps and the Bank of Japan is expected to hike (on December 19) after 11 months of unchanged policy rates, some forces are countering the recent gigantic rise.
Looking at USD/JPY, the relentless rise of the past few months has materialized into a top around the end of November (157.895), but as strong trends seldom reverse directly, bulls attempted another rebound last week ahead of the FOMC, forming a lower high (156.930).
Sellers are now attempting to break the channel support, but will need to make a clear push below the 155.00 major pivot zone.
Failing to do so would imply maintaining the September channel.
USD/JPY 4H chart, December 15, 2025. Source: TradingView. Past performance is not indicative of future results.
Resistance levels
- 156.00 Main resistance
- Mini-resistance 157.00 to 157.30
- 157.90 to 158.90 Yearly resistance and cycle highs
Support levels
- 155.00 Pivot zone (+/- 100 pips) – immediate support & channel lows
- 154.00 Psychological support
- Minor support at 153.00
- Higher timeframe momentum pivot 152.00 to 152.50
This article is for general information purposes only, not to be considered a recommendation or financial advice. Past performance is not indicative of future results. It is not investment advice or a solution to buy or sell instruments.
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