USD/JPY forecast: Currency Pair of the Week – December 2, 2024

Our featured currency pair of the week is the USD/JPY. The pair fell in November even as the dollar index rose for the second consecutive month. Last week saw the dollar come under pressure, as major pairs such as the EUR/USD and GBP/USD staged a relief bounce. The yen was the biggest performer last week, underscoring expectations about a potential rate hike from the Bank of Japan, just as the world’s other central banks are now on the easing path. But now it has arrived at a key technical support area of around 150.00 ahead of critical US economic releases this week. With a jam-packed calendar including, ISM Manufacturing and Services PMIs, the closely watched JOLTS Job Openings report, and the monthly Non-Farm Payrolls report to come, traders are bracing for volatility. These data points are expected to influence the USD/JPY forecast, especially with both the Fed and BoJ policy decisions looming in December.

BOJ rate hike buzz lifts yen’s appeal

The yen is gaining traction as speculation mounts that the Bank of Japan might raise rates in December. This expectation isn’t just bolstering the yen against the dollar; it’s also pressuring other pairs like EUR/JPY, which recently dropped below 160.00 and is now flirting with the 157.00 zone. The euro’s struggles, tied to Europe’s ongoing economic and political issues, amplify the yen's strength.

But it looks like speculators are trying to ride the yen rally. Last week, large speculators piled into long positions on the yen amid renewed expectations of a 25 basis point hike from the Bank of Japan this month. Notably, large speculators reduced short positions and ramped up long exposure by more than 23%, adding nearly 15K contracts to their bullish bets. 

Key US data to shape USD/JPY forecast

Looking ahead to this first week of December, all eyes are on pivotal US economic indicators. While ISM PMIs will provide clues about the health of the world’s largest economy, the JOLTS report could take centre stage as the Federal Reserve zeroes in on employment trends. Signs of weakness in these reports might tilt the odds toward a December rate cut, currently priced with a 65% probability. 

Meanwhile, the November jobs report, due Friday, will be the headline event. After last month’s unexpectedly strong figures and the political shift from Trump’s re-election, expectations for aggressive Fed cuts in 2025 have waned. Whether the Fed decides to cut rates in its final 2024 meeting could hinge on this critical data, setting the tone for USD/JPY’s trajectory into the new year.

Here is a list of key data highlights from the US and what to expect:

Technical USD/JPY forecast:  Potential for a pullback if THIS support gives way

Source: TradingView.com

Last week’s drop in USD/JPY underscores a possible key swing low for the yen, potentially setting the stage for further recovery in the yen. But for that to happen, the USD/JPY will need to stage a decisive break below the key 150.00 support level.

Previously a strong resistance area, this level now serves as a battleground. A rebound here could see the pair testing the 200-day moving average and targeting resistance around 151.30-152.00.

However, if support fails—marked by a decisive daily close below the 149.40-150.00 range—a sharper decline towards 147.20 or even 144.53 (the next potential support levels) may follow. This scenario would paint a more bearish-leaning technical USD/JPY forecast heading into the two central bank meetings later this month.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R