Japanese Yen Forecast: USD/JPY Falls as Japan PMI Fuels BoJ Hike Bet

USD/JPY briefly reclaimed the 156 handle on Tuesday, December 2, as 10-year Japanese Government Bond (JGB) yields eased back from the previous day’s 2008 highs. The drop in JGB yields calmed concerns about a yen carry trade unwind, sending USD/JPY higher for the day.

On Wednesday, December 3, Japanese Services PMI data fueled speculation about a December Bank of Japan rate hike. Service sector activity and price trends remain key considerations for BoJ interest rate decisions. Rising bets on a BoJ rate hike clash with expectations of a Fed rate cut, supporting a short- to medium-term bearish USD/JPY outlook.

Below, I’ll discuss the macro backdrop, the near-term price catalysts, and technical levels traders should closely watch.

Services Sector Price Trends Bolster Case for a BoJ Rate Hike

The S&P Global Japan PMI increased from 53.1 in October to 53.2 in November, up from the preliminary 53.1 reading. November’s PMI survey signaled a pickup in economic momentum, given that services account for roughly 70% of Japan’s GDP. While the headline PMI influences yen demand, several sub-components are likely to bolster bets on a December BoJ rate hike. These include:

• Employment increased at the fastest pace in ten months.
• Input cost inflation accelerated at the quickest rate in six months, driven by higher labor costs.
• Average selling prices also rose as firms passed higher input prices on to customers.

Labor market and inflation trends are crucial. Typically, rising employment and higher wages boost domestic consumption and fuel demand-driven inflation, supporting a more hawkish BoJ policy stance.

Furthermore, optimism across the sector improved mid-way through Q4, signaling a robust demand outlook.

November’s PMI came as Japanese labor unions have started negotiating wage hikes for 2026. BoJ Governor Kazuo Ueda underscored the significance of wage growth. Governor Ueda hinted at an imminent rate hike, citing rising wages, easing US tariff risks, and FX sensitivity.

Looking at the five-minute chart, USD/JPY briefly dropped to a post-Services PMI release low of 155.662 before edging higher. Price action aligned with rising bets on a December BoJ rate hike, supporting a bearish short- to medium-term outlook for USD/JPY.

US Services PMI Data to Spotlight the US Dollar

While Japan’s Services PMI data supported bets on a BoJ rate hike, US Services PMI data will likely influence the Fed’s post-December rate path.

Economists forecast the ISM Services PMI to fall from 52.4 in October to 52.1 in November. A sharper drop in the headline PMI would signal a loss of economic momentum, given that services account for around 80% of US GDP. However, traders should also consider employment and price trends. Slower sector activity, rising job cuts, and higher prices may revive stagflation jitters and challenge bets on post-December Fed rate cuts.

Rising stagflation risks and a hawkish BoJ rate path align with my short- to medium-term outlook for USD/JPY.

Crucially, there are no FOMC member speeches to influence sentiment, with the Fed Blackout Period in effect until December 11, limiting Fed-driven volatility.

According to the CME FedWatch Tool, the chances of a December cut stand at 89.2% on December 2, up from 86.4% on December 1. Meanwhile, the probability of a January rate cut edged up from 23.0% to 25.7%. Sentiment toward first-quarter rate cuts will be key, given that markets are expecting BoJ and Fed policy adjustments in December.

Technical Outlook: USD/JPY on a Downward Trajectory

Looking at the daily chart, USD/JPY traded above the 50-day and 200-day Exponential Moving Averages (EMAs), affirming a bullish bias. However, fundamentals have begun to shift from the technical trend, supporting a bearish outlook.

A drop below the 155 support level would open the door to testing the 50-day EMA. If breached, the 153 support level would be the next key support. Crucially, a break below the 50-day EMA would indicate a bearish trend reversal, suggesting a near-term fall toward 150.

Position and Upside Risk

In my view, the Japanese PMI data support a bearish short- to medium-term outlook. A USD/JPY drop below the 50-day EMA will likely bolster the case for a sharper decline toward 150 and the 200-day EMA, bringing 140 into view over an extended horizon.

However, upside risks linger, including:

• BoJ calls for delays in raising interest rates.
• Weak Q4 Japanese data.
• Stronger US inflation.
• Upbeat US Services PMI data.
• Stronger US jobs data.
• Hawkish Fed comments.

Despite the upside risks, yen intervention warnings will likely cap upside around the November 20 high of 157.893, based on past communication.

Read the full USD/JPY forecast, including chart setups and trade ideas.

Conclusion: Longer-Term Trajectory to 130 in Play

To summarize, BoJ monetary policy normalization and Fed monetary policy easing open the door to a reversal of gains since 2022. Barring upside risk developments, USD/JPY will likely fall toward the 2023 low of 127.215 in the next 6-12 months.

For more in-depth analysis, review today’s USD/JPY trading setups in our latest reports and consult the economic calendar.