December 2025

The USD/JPY pair has been on a bullish run lately, increasing by over 1% in the last five trading sessions. If you're watching the Yen, which has been weak for a while, this might seem discouraging. But if you look closer at this short-term increase, the fundamentals and technicals suggest a reversal is possible. This could mean the Yen ends the year with gains against the Dollar. The Fed’s Expected Rate Cuts One thing that could make the JPY stronger is a possible change in US monetary policy. Many think the Federal Reserve is either close to, or already starting to loosen its policies. Forecasts from institutions like Goldman Sachs Research indicate that the Fed is highly likely to implement further rate cuts, potentially targeting a lower fed funds rate range in the near future, driven by a cooling labor market and inflation readings moving closer to the 2% target. BoJ Policy Normalization On the Japanese side, the long-awaited move toward policy normalization is gaining traction. While the Bank of Japan (BOJ) remains cautious, recent developments point to a structural shift away from decades of disinflation. Data released for October 2025 showed core inflation near 3.0%, while nominal wages rose at their fastest pace in three months. The BOJ is dealing with inflation that's been above its 2% target, and it looks ready for more rate increases. Reuters says that officials are worried about high price pressures, which could lead to faster normalization than expected, narrowing the yield difference with U.S. Treasuries. Japan's core CPI has been around 2.5% for months, adding to the calls for action at the December 18-19 meeting. Why the Yen Could Still Win If the FOMC hints at more cuts in 2026, the dollar might not be as attractive as a safe haven, which would help the yen. There's also the chance of official intervention. Bloomberg points out that if it remains weak, the Ministry of Finance might have to sell dollars, especially if USD/JPY goes above 158, similar to what they did in 2024 to stop losses. EBC Financial Group's recent look suggests there are higher risks of intervention, with the pair dropping from 2025 highs near 158.50, signaling that efforts are underway to stabilize the yen. Market sentiment seems to agree with this cautious approach. MUFG Research's December outlook says that November's yen drop was an overreaction by investors to the aggressive fiscal expansion and monetary easing policies under Prime Minister Takaichi in an inflationary environment. However, they expect a correction as global risk appetite decreases. Also, with uncertainties surrounding the U.S. mid-term elections and slow growth in Europe, there could be a move toward the yen as a funding currency USD/JPY Forecast Looking at the technicals, USD/JPY bulls are in control, with the RSI at 156.47. Primary resistance will likely be at the psychological 157.00, above which the next hurdle could come at 157.50. On the downside, the first support is at the Volume Weighted Moving Average (VWMA) level at 155.93, below which the upside narrative will be invalid. Further control by the sellers could take the pair lower and test 155.30. USDJPY daily chart with key support and resistance levels on December 10, 2025. Created on TradingView How could a change in US Federal Reserve (Fed) policy help the Yen gain value by the end of the year? Experts think the Fed will cut rates more because US inflation and job numbers are slowing down. These cuts lower the returns on Dollar investments, making the USD less attractive, which is a bullish factor for the Yen. What recent Japanese economic data suggests the Bank of Japan (BOJ) is moving toward policy normalization and rate hikes? Recent numbers, like core inflation close to 3.0% and wages growing faster than they have in months, suggest that inflation is becoming a long-term issue. This pressure on wages and prices makes many believe that the BOJ will likely raise interest rates soon. Why might the Bank of Japan raise interest rates before year-end? Japan’s core CPI is still around 2.5%, which is higher than the 2% target. This keeps pressure on prices. BOJ officials are increasingly concerned, making a rate hike likely at the December 18–19 meeting to normalize policy and support the yen