USD/JPY Rallies as Fed Forecasts Less Rate-Cuts for 2025

US Dollar Outlook: USD/JPY

USD/JPY rallies to a fresh monthly high (154.64) even as the Federal Reserve implements a 25bp rate-cut at its last meeting for 2024, and the exchange rate may further retrace the decline from the November high (156.75) as it continues to hold above the 50-Day SMA (152.33).

USD/JPY Rallies as Fed Forecasts Less Rate-Cuts for 2025

USD/JPY breaks out of the range bound price action from earlier this week as the update to the Fed’s Summary of Economic Projections (SEP) shows that ‘the median participant projects that the appropriate level of the federal funds rate will be 3.9% at the end of next year’ instead of the 3.4% forecast at the September meeting.

Join David Song for the Weekly Fundamental Market Outlook webinar.

David provides a market overview and takes questions in real-time. Register Here

Forecasts for less rate-cuts from the Federal Open Market Committee (FOMC) may keep USD/JPY as Chairman Jerome Powell acknowledges that ‘our policy stance is now significantly less restrictive,’ and the central bank may continue to adjust its forward guidance in the months ahead as the FOMC can ‘be more cautious as we consider further adjustments to our policy rate.’

US Economic Calendar

In turn, the update to the US Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred gauge for inflation, may also sway foreign exchange markets as both the headline and core rate are projected to increase in November.

With that said, signs of persistent price growth may generate a bullish reaction in the Greenback as it puts pressure on the FOMC to further combat inflation, but a lower-than-expected PCE print may curb the recent advance in USD/JPY as it encourages the Fed to deliver more than two rate-cuts in 2025.

USD/JPY Price Chart – Daily

Chart Prepared by David Song, Strategist; USD/JPY on TradingView

USD/JPY extends the advance from the weekly low (153.16) to trade back above 153.80 (23.6% Fibonacci retracement), and the exchange rate may track the positive slope in the 50-Day SMA (152.33) as it holds above the moving average.
A breach above 156.50 (78.6% Fibonacci extension) may lead to a test of the November high (156.75), with the next area of interest coming in around 160.40 (1990 high).
At the same time, lack of momentum to test the November high (156.75) may keep USD/JPY within a defined range, with a move/close below 151.95 (2022 high) bringing the 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension) zone back on the radar.

Additional Market Outlooks

US Dollar Forecast: AUD/USD Approaches November 2023 Low

USD/CAD Pullback Keeps RSI Below Overbought Territory

US Dollar Forecast: EUR/USD Attempts to Halt Five-Day Selloff

Gold Price Forecast: Bullion Remains Below Pre-US Election Prices

--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

FOREX.com is a registered FCM and RFED with the CFTC and member of the National Futures Association (NFA # 0339826). Forex trading involves significant risk of loss and is not suitable for all investors. Full Disclosures and Risk Warning. Increased leverage increases risk.

GAIN Capital Group LLC (dba FOREX.com) 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA. GAIN Capital Group LLC is a wholly-owned subsidiary of StoneX Group Inc.