The USD/JPY exchange rate pulled back after the latest macro data from Japan. It was trading at 156.25, down from this month’s high of 157.83. It has also formed the risky double-top pattern, pointing to more downside in the coming days.
Weak Japanese data raises doubts for BoJ rate hikes
The USD/JPY exchange rate was in a tight range after Japan published mixed macro data on Friday.
A report by the statistics agency showed that the unemployment rate remained at 2.6%, while the jobs/applications ratio was unchanged at 1.18.
Another report showed that the Tokyo headline Consumer Price Index (CPI) dropped from 2.7% in November to 2.0% this month.
The core consumer inflation, which excludes the volatile food and energy prices, moved from 2.8% to 2.3%, moving closer to the BoJ’s target of 2.0%.
More data showed that the country’s retail sales dropped from 1.6% in October to 0.6% in November, a sign that demand is falling.
At the same time, the country’s industrial production dropped to minus 2.6% in November after expanding by 1.6% in the previous month.
Therefore, there are signs that Japan’s economy is moderating, a move that may limit the central bank’s hawkish tone.
These numbers came a week after the BoJ delivered its final interest rate decision of the year. It hiked interest rates by 0.25% to a three-decade high of 0.75% and hinted that it will deliver more hikes in 2026 if the economic growth accelerates.
Traders still believe that the bank will deliver either one or two more hikes in 2026 if inflation continues rising because of the recently announced stimulus package.
Federal Reserve interest rate cuts in 2026
Meanwhile, the Federal Reserve delivered the third interest rate cut in its December meeting. It moved the benchmark rate to between 3.50% and 3.75%.
A Polymarket poll with over $1.2 million in assets, has more traders betting than the bank will deliver two cuts in 2026. 19% of the users expect the bank to cut rates three times, while 16% see four cuts.
The main reason to predict more cuts is that Donald Trump has pledged to appoint a Fed Chair who will be more comfortable delivering more cuts.
However, the new Fed Chair will face the challenge of convincing more officials to cut rates, especially now that the recent US GDP data showed that the economy was doing well. The report showed that the economy expanded by 4.3% in the third quarter, much higher than what analysts were expecting.
Fed officials have started to deviate from the Federal Reserve officials. For example, two officials voted for leaving interest rates unchanged in the last meeting, while one voted for a 0.50% cut.
USD/JPY forecast: technical analysis
USD/JPY chart by TradingView
The daily timeframe chart shows that the USD/JPY exchange rate has pulled back in the past few days, moving from the year-to-date high of 157.83 to the current 156.28.
It has formed a double-top pattern whose neckline is at 154.42. Also, the Relative Strength Index and the Percentage Price Oscillator have formed a bearish divergence pattern.
Therefore, the pair will likely continue falling, with the next key support level to watch being the neckline at 154.42. More downside will be confirmed if it moves below the 50-day moving average at 154.60.
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