Introduction to the USDJPY Exchange Rate
The USDJPY exchange rate has been making headlines in recent days, and for good reason. After reaching a high of 157.83, the rate pulled back to 156.25, leaving many to wonder what’s next. One thing is certain, however: the rate has formed a risky double-top pattern, indicating a potential downturn in the coming days.
Weak Japanese Data Raises Doubts for BoJ Rate Hikes
The USDJPY exchange rate was recently in a tight range after Japan released mixed macro data. The country’s unemployment rate remained steady at 2.6%, while the jobs-to-applications ratio stayed the same at 1.18. However, the Tokyo headline Consumer Price Index (CPI) dropped from 2.7% to 2.0%, and the core consumer inflation rate decreased from 2.8% to 2.3%. These numbers are moving closer to the Bank of Japan’s (BoJ) target of 2.0%, which may limit the central bank’s hawkish tone.
Retail Sales and Industrial Production
Other data showed that Japan’s retail sales dropped from 1.6% in October to 0.6% in November, indicating falling demand. The country’s industrial production also declined, dropping to -2.6% in November after expanding by 1.6% in the previous month. These signs of a moderating economy may lead to fewer interest rate hikes by the BoJ.
Federal Reserve Interest Rate Cuts in 2026
Meanwhile, the Federal Reserve delivered its third interest rate cut in December, moving the benchmark rate to between 3.50% and 3.75%. A Polymarket poll with over $1.2 million in assets found that many traders believe the bank will deliver two more cuts in 2026. Some even predict three or four cuts, although this is less likely. The main reason for these predictions is Donald Trump’s pledge to appoint a Fed Chair who will be more comfortable delivering rate cuts.
US GDP Data
However, the new Fed Chair will face challenges in convincing officials to cut rates, especially given the recent US GDP data. The economy expanded by 4.3% in the third quarter, much higher than expected. This may lead some officials to deviate from the Federal Reserve’s stance, as two officials already voted to leave interest rates unchanged in the last meeting, and one voted for a 0.50% cut.
USDJPY Forecast: Technical Analysis
The daily timeframe chart shows that the USDJPY exchange rate has pulled back in recent days, moving from the year-to-date high of 157.83 to the current 156.28. The rate has formed a double-top pattern with a neckline at 154.42. The Relative Strength Index and the Percentage Price Oscillator have also formed a bearish divergence pattern. This indicates that the pair will likely continue falling, with the next key support level to watch being the neckline at 154.42. A move below the 50-day moving average at 154.60 would confirm more downside.
Conclusion
In conclusion, the USDJPY exchange rate is facing a potential downturn due to the formation of a double-top pattern and bearish divergence in the Relative Strength Index and Percentage Price Oscillator. The mixed macro data from Japan and the Federal Reserve’s interest rate cuts may also contribute to this decline. As the economy continues to evolve, it’s essential to keep a close eye on the USDJPY exchange rate and its potential impact on the global market. With the next key support level at 154.42, investors should be prepared for further volatility in the coming days.
