Japanese Leading Economic Indicator in Focus

Later on Monday, Japanese economic indicators are likely to fuel speculation about an April Bank of Japan rate hike. According to the preliminary report, the Leading Economic Index (LEI) increased from 109.8 in October to 110.5 in November, suggesting a pickup in economic momentum.

An upward revision to the preliminary number would raise expectations of an April BoJ rate hike, boosting buying interest in the yen. The stronger yen would push USD/JPY lower.

Traders should pay close attention to LEI trends. A higher reading suggests improving business investment, rising employment, and higher wages. Importantly, stronger wage growth would increase households’ purchasing power, fueling spending and demand-driven inflation.

An upward trend in consumption and inflation would align with the BoJ’s upward revisions to inflation in its quarterly outlook report, supporting a more hawkish BoJ rate path.

Rising bets on BoJ rate hikes and Fed rate cuts reaffirm the bearish medium- to longer-term price projections.

US Durable Goods Orders and the Fed in Focus

While the yen gets government support, US economic data will influence the appetite for the US Dollar. Durable goods orders, the Chicago Fed National Activity Index, and the Dallas Fed Manufacturing Index will be in focus. However, durable goods order trends are likely to garner more attention, given that the Index gives insight into business and consumer spending.

Economists expect durable goods orders to rise 0.5% month-on-month in November after sliding 2.2% in October. A higher-than-expected reading would indicate a pickup in manufacturing sector activity, bolstering the US economy. However, the numbers may have limited influence on Fed rate-cut bets, given that the manufacturing sector accounts for just 20% of US GDP.

Traders should closely monitor FOMC members’ speeches, which will likely have more influence on sentiment toward an H1 2026 Fed rate cut and USD/JPY trends.

Technical Outlook: Key Levels to Watch

For USD/JPY price trends, traders should consider technicals and closely follow central bank and political headlines.

On the daily chart, USD/JPY trades below its 50-day Exponential Moving Average (EMA), but above the 200-day EMA. The EMAs signaled a near-term bearish trend reversal, aligning with the negative outlook for USD/JPY. Constructive yen fundamentals have aligned with the near-term technicals.

A sustained drop below the 155 support level would expose the 200-day EMA. If breached, 150 would be the next key support level.

Crucially, a sustained fall through the EMAs would reaffirm the bearish short- to medium-term price outlook.