The Yen Rout Continues: USD/JPY Surges to New Monthly Highs despite Key Rate decisions

The Japanese Yen rout shows no signs of abating, pushing the USD/JPY pair to yet another set of monthly highs despite tomorrow’s highly anticipated rate cut from the Federal Reserve, combined with expectations of another hike in Japan.

Rising expectations for another rate hike in Japan

The decisive driver behind the Yen's continued weakness is the market's profound distrust of the Japanese monetary and fiscal coordination.

On one side, Prime Minister Sanae Takaichi’s government has pushed through gigantic stimulus with a stance the market deems fiscally reckless, leading to the original flash higher in USD/JPY – Reassuring words from the PM haven't had the best reception.

On the other side, Bank of Japan Governor Kazuo Ueda is desperately trying to signal a normalization shift.

In recent remarks, Ueda emphasized that the "certainty of the BoJ’s outlook materializing is increasing gradually," and that current policy remains "accommodative," even after previous minor adjustments.

Still, Traders deem the divergence in both policies not being sustainable and leading to a confidence extinction.

Even if the Bank of Japan hikes, how much can they really hike?

The Yen's safety will be contingent on not just a hike, but a more stable and decisive tightening cycle.

Also, keep a close eye on reactions to the Dollar tomorrow while Powell speaks!

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What was thought to have been a top in the currency pair now looks like a healthy pullback.

As the daily RSI went from overbought to neutral, bulls resurfaced strongly and are making a statement in the price action and are fully back in control.

The only way for bears to have a case here would be if a mean reversion move towards the close would bring the action back within the 156.00 to 156.750 Main resistance.

But things are not looking in this direction right now.

Look at how clean the September Channel got respected on the recent rebound.

USD/JPY technical levels of interest:

Support Levels:

• 155.00 Pivot Zone
• Recent Lows 154.40
• 154.00 Psychological Support
• 50-Day MA 153.00
• 150.00 Psychological Support and 50-Week MA
• 146.00 August Range Main Support

Resistance Levels:

• 156.00 to 156.750 Main resistance (breaking)
• 157.90 to 158.90 Yearly Resistance
• 157.895 Recent Highs
• 2025 Highs and April 2024 peaks 158.80 to 160.00
• 1990 and July 2024 Peak 161.00 to 162.00

The current move does not look like it's about to stop.

• A mini-resistance is coming up right above 157.00 and will be one of the two final points for sellers to appear again.
• The other one naturally being 157.895, the recent highs.

Momentum is very overbought which may prompt some stoppage, but with buyers disregarding tomorrow's number, I wouldn't be surprised to see continuation here.

A big part of the longer-run outlook for the pair will be dependent on what happens at tomorrow's FOMC event.

The second most important event will be the Bank of Japan's meeting on December 19.

Don't just watch the rate decision, keep a close eye on communications from the Central Banks!

Safe Trades!

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