USD/JPY Analysis: The Yen Recovers Rapidly After the Federal Reserve’s Decision

Over the past two trading sessions, USD/JPY has fallen sharply, losing more than 1% of its value as price action increasingly favors the yen in the short term. The current selling pressure began to intensify shortly after yesterday’s Federal Reserve decision, which triggered structural weakness in the U.S. dollar. As long as this weakness persists, bearish pressure may continue to dominate USD/JPY’s movements in the sessions ahead.

What Happened with the Federal Reserve’s Decision?

During yesterday’s session, the Federal Reserve announced the long-awaited rate decision: a 0.25% cut, lowering the policy rate from 4.00% to 3.75%. However, the most relevant part came from Chair Powell’s remarks afterward, where he indicated that rate hikes are unlikely in the coming months, while acknowledging ongoing signs of weakness in the U.S. labor market. This opened the door to a scenario of neutral or even lower rates heading into 2026, which the market interpreted as a stronger inclination toward additional cuts.

Even though Powell’s comments were not fully dovish, they were enough to trigger a structural decline in Treasury yields. The 10-year Treasury yield, considered one of the safest assets worldwide, has dropped from around 4.2% to levels increasingly close to 4.0%, showing that Treasury bonds are now offering lower returns following the central bank’s decision.

Source: TradingEconomics

This decline in yields has also weakened the U.S. dollar, as lower Treasury returns reduce demand for the bonds themselves and, in turn, lower foreign capital inflows—directly affecting USD demand. This structural weakness is clearly reflected in the DXY index, which remains below 100 points, now reaching the 98-point area—levels not seen since October—indicating a broad loss of confidence in the U.S. dollar.

Source: TradingEconomics

Taken together, the Federal Reserve’s decision has triggered a structural weakening of both Treasury yields and the dollar, creating space for the yen to regain ground in the short term. If this dynamic continues, consistent selling pressure could remain on USD/JPY in the sessions ahead.

 

The Bank of Japan May Deliver a Surprise

Another factor to watch in the coming days is the Bank of Japan’s upcoming monetary policy meeting, scheduled for December 18–19, where a potential rate hike from the current 0.5% to 0.75% is on the table.

This expectation arises because, in recent weeks, BOJ members have emphasized the persistent weakness of the yen, while pointing out that some indicators suggest inflationary pressures could intensify. This has led markets to believe that the BOJ may be preparing to move gradually away from its ultra-low interest rate policy.

If upcoming communications confirm this shift and strengthen expectations for 2026, the yen could gain additional momentum. A rate hike would narrow the interest rate differential relative to other central banks, making yen-denominated fixed-income assets more attractive. This could support stronger demand for the Japanese currency and reinforce downward pressure on USD/JPY.

 

USD/JPY Technical Outlook

Source: StoneX, Tradingview

• Bearish Bias Strengthens: Since late November, USD/JPY has shown a consistent bearish bias, moving away from the aggressive bullish trendline that had held since October. Although the pair still retains a longer-term bullish trend, recent price action has begun forming lower highs, which could lead to the development of a short-term downtrend if selling pressure continues.
   

• RSI: The RSI line now shows a steady downward slope and has fallen to the center area of the 50 level. Continued movement below this threshold could signal a dominance of bearish momentum, potentially reinforcing selling pressure in the short term.
   
• MACD: The MACD histogram remains below zero, indicating that the strength of short-term moving averages continues to favor the bearish side. If the histogram drops further, bearish pressure could intensify in USD/JPY during the next sessions.

 

Key Levels:

• 158.207 – Key Resistance: This level corresponds to the annual highs and represents the most important bullish barrier for 2025. A sustained move above it could reactivate the aggressive bullish trendline observed in earlier weeks.
   
• 155.000 – Nearby Barrier: A psychological neutrality zone. If price remains around this area, a short-term sideways range may develop, increasing indecision in USD/JPY.
   
• 153.300 – Main Support: This level represents the most consistent neutrality zone in recent weeks and aligns with the 50-period moving average. A break below it could shift the balance of market forces and lead to a new short-term bearish trend, reinforcing selling pressure on USD/JPY.
   

Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him at: @julianpineda25