USD/JPY Forecast: What’s Next for the Yen After the BOJ Decision?

Over the past seven trading sessions, USD/JPY has lost nearly 1% of its value, with movements favoring the Japanese yen and weighing on the U.S. dollar. A new wave of short-term selling pressure has begun to form as the market awaits the Bank of Japan’s decision, as well as the recent U.S. inflation data, which continues to project a weak outlook for the dollar in the near term. If the BOJ does not surprise with an unexpected decision, the selling pressure that is just beginning to build in USD/JPY may gain relevance toward year-end.

What to Expect from the Bank of Japan?

Between today’s session and tomorrow’s, the Bank of Japan will release its monetary policy decision. For now, market consensus expects the institution to raise its interest rate from 0.5% to 0.75%, which would make the BOJ the only major central bank hiking rates in the final stretch of 2025.

The possibility of a more aggressive BOJ stance is supported by recent inflation data in Japan, which now shows an increase toward 3.00% annually, rising steadily from 2.7% recorded in August of this year. This confirms that inflationary pressure has once again become relevant and could become a serious issue if the BOJ decides to keep rates too low in the short term.

Source: TradingEconomics

It is important to consider that throughout 2025, the BOJ has had one of the lowest interest rates in the world, and a shift toward a more aggressive stance could break the alignment seen with other major central banks, which have opted for neutral or lower-rate policies. Over time, this shift could narrow the interest-rate differential between Japan and other developed economies, increasing the perception that yen-denominated investments may become more attractive and eventually driving stronger demand for the yen from foreign capital.

Thus, if the Bank of Japan does not introduce unexpected changes in its upcoming decision and reaffirms the possibility of adopting a more aggressive stance for next year, it could become a key catalyst for a more consistent wave of selling pressure in USD/JPY.

 

What Happened with U.S. Inflation Data?

Today, the U.S. annual CPI was released, and the result partially surprised the market. A reading of 3.1% had been expected, but the actual figure came in at 2.7%. This suggests that inflationary pressure in the U.S. is beginning to moderate, at least according to November’s data, and could become a crucial factor for the Federal Reserve’s decisions next year.

Following this release, the Fed’s probability table adjusted quickly. At this moment, there is a 73.4% probability that the January 28, 2026 decision will maintain the interest rate at 3.75%. However, for March 18, there is now a 45.8% probability of a new cut to 3.5%, something that had initially been expected for late April. This shift suggests that a rate cut could be closer than anticipated.

Source: CMEGROUP

Taking this into account, the new inflation data may reshape market expectations for the Federal Reserve in 2026. If this lower-rate scenario persists, it could generate broad weakness in U.S. Treasury yields, limiting foreign capital inflows and reducing demand for the U.S. dollar. This relationship could maintain a structural weakness in the dollar, allowing the Japanese yen to strengthen steadily and contributing to the development of continued selling pressure on USD/JPY in the short term.

 

USD/JPY Technical Outlook

Source: StoneX, Tradingview

• The Long-Standing Uptrend Loses Momentum: For several months, USD/JPY has maintained consistent bullish oscillations, allowing the long upward trendline to remain intact on the chart. However, recent selling pressure has begun to generate steady indecision, pulling the price away from recent highs and bringing it closer to the 50-period moving average. If selling pressure continues to strengthen, the bullish momentum may weaken further, giving way to a more relevant bearish bias as we approach the final movements of 2025.
   

• RSI: The RSI line currently shows a persistent downward slope and is approaching the neutral 50 level. If RSI crosses below this threshold, it would indicate growing seller dominance in the average of the last 14 sessions, potentially opening the door to more consistent downward pressure on the price.
   
• MACD: The MACD histogram continues to oscillate below the zero line, suggesting that the dominant force in short-term moving averages remains bearish. If this pattern continues, it could further reinforce the emergence of stronger selling pressure in USD/JPY.
   

Key Levels:

• 157.479 – Key resistance: This level corresponds to the most recent highs and remains the most important bullish barrier. Bullish oscillations returning to this area could reinforce a bullish bias and extend the long-term uptrend still visible on the chart.
   
• 154.313 – Nearby barrier: A price-neutrality zone that aligns with the 50-period moving average and the 23.6% Fibonacci retracement. If price action remains below this region, a dominant bearish bias may form for the final weeks of 2025.
   
• 150.831 – Main support: This level corresponds to the barrier created by the long-term upward trendline. If the price returns to this zone, the trendline could be at risk, potentially giving way to the formation of a new short-term downtrend in favor of the yen heading into 2026.
   

Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him at: @julianpineda25