Will BoJ Governor Ueda Greenlight a Hike?

Later this morning, BoJ Governor Kazuo Ueda could greenlight a December hike, potentially kick-starting a USD/JPY bearish-trend reversal.

USD/JPY has soared 5.63% in the fourth quarter, fueled by Prime Minister Sanae Takaichi’s support for ultra-loose monetary policy and fiscal stimulus policies. Previously fading bets on a December rate cut contributed to the fourth quarter rally.

However, growing concerns about the weaker yen pushing import prices higher and eroding Japanese households’ purchasing power have added to the chances of a BoJ hike.

I expect USD/JPY to drop sharply if Governor Ueda focuses on elevated import prices while talking optimistically about wage growth. Markets would likely view such comments as a green light for a rate hike at the December meeting.

Economists continue to flag the weaker yen as a BoJ focal point, aligning with my bearish stance on USD/JPY.

East Asia Econ commented on October’s national inflation figures, stating:

“Headline SPPI inflation was stable in October, but weak for high labor-intensive sectors, while part-time wages were strong, likely on the back of the minimum wage hike. That’s an unclear picture. But right now, with JPY so weak, the BoJ will focus more on headline CPI than these messy details.”

US PMI Data and Fed Speakers to Impact US Dollar Demand

While BoJ Governor Ueda will take center stage in the Asian session, US data and Fed speakers are in focus later on Monday.

Economists forecast the ISM Manufacturing PMI to fall from 48.7 in October to 48.6 in November. A more marked contraction across the manufacturing sector and softer prices would raise expectations of a December Fed rate cut.

November’s data will come ahead of a Fed Chair Powell speech after the market close on Monday, December 1.

Powell’s support for a December rate cut, coupled with a hawkish BoJ Governor, would likely send USD/JPY toward 150, setting up a sharper fall to 140 later in the month.

According to the CME FedWatch Tool, the probability of a December cut jumped from 39.1% on November 20 to 86.4% on November 28. Meanwhile, November’s Reuters poll showed a majority of economists predicting a December BoJ rate hike. All panelists expecting a policy adjustment by March 2026.

Technical Outlook: USD/JPY Faces Three-Day Losing Streak

Looking at the daily chart, USD/JPY remained above the 50-day and 200-day Exponential Moving Averages (EMAs), affirming a bullish bias. However, fundamentals have started to shift from the technical trend, supporting a bearish outlook.

A break below the 155 support level would pave the way to the 50-day EMA and the 153 support level. If breached, the 200-day EMA and 150 would be the next key support levels. Crucially, a break below the 50-day EMA would indicate a bearish trend reversal, signaling a drop toward 140.