USD/JPY Weakens Near 155 as BoJ Hike Bets Clash With Key US Data.

Source : https://www.reuters.com/world/asia-pacific/boj-likely-raise-rates-december-government-tolerate-move-sources-say-2025-12-04/

The USD/JPY pair started Tuesday on the back foot, easing toward the 155.00 level during early Asian trading. The modest pullback reflects a shift in market focus, as traders increasingly price in the possibility of an interest rate hike by the Bank of Japan (BoJ) later this week. At the same time, investors are bracing for a heavy slate of US economic data, which could reshape expectations for the Federal Reserve’s next policy moves and determine whether the US Dollar can regain momentum.

BoJ Rate Hike Bets Lift the Yen

For much of the past decade, the Japanese Yen has been weighed down by the BoJ’s ultra-loose monetary policy. However, that narrative has gradually begun to change. Markets are now widely expecting the BoJ to raise interest rates at its upcoming policy meeting on Friday, a move that would further signal Japan’s slow but steady exit from years of aggressive monetary accommodation.

According to a Reuters poll conducted between December 2 and 9, nearly 90% of economists expect the BoJ to lift short-term interest rates to 0.75% from 0.50%. This marks a sharp jump from the previous month’s survey, where only 53% anticipated such a move. The growing consensus has provided fresh support to the Yen, putting downward pressure on USD/JPY.

Reuters also reported that while the BoJ is likely to reaffirm its commitment to gradually raising rates, policymakers remain cautious. Future hikes will depend heavily on how the Japanese economy responds to tighter financial conditions, particularly in terms of wage growth, consumer spending, and inflation sustainability.

Why the 155 Level Matters

The area around 155.00 has become a psychologically important zone for USD/JPY traders. In recent months, the pair has hovered near multi-decade highs, fueled by the wide interest rate differential between the US and Japan. As long as US yields remain elevated relative to Japanese yields, the Dollar tends to hold the upper hand.

However, expectations of a BoJ rate hike threaten to narrow that gap. Even a modest increase in Japanese rates can have an outsized impact on the Yen, especially if investors believe it marks the beginning of a broader normalization cycle. This explains why USD/JPY has struggled to extend gains despite generally supportive conditions for the US Dollar.

US Data in the Spotlight

While the Yen draws strength from BoJ speculation, the US Dollar’s next move will depend heavily on incoming economic data. A backlog of reports delayed by the government shutdown is set to be released, making Tuesday particularly eventful for markets.

Key highlights include US employment reports for October and November, alongside Retail Sales and Purchasing Managers’ Index (PMI) data. Together, these releases should provide a clearer picture of the health of the US labor market and overall economic momentum.

Strong employment and spending data could reinforce the Dollar by pushing back against expectations of early rate cuts by the Federal Reserve (Fed). On the other hand, signs of cooling demand or weakening job growth would likely weigh on the Greenback and add further downside pressure to USD/JPY.

Adding to the uncertainty, investors are also looking ahead to US Consumer Price Index (CPI) data due later in the week. Inflation trends will play a crucial role in shaping expectations for the Fed’s January meeting, particularly as policymakers balance slowing growth risks against persistent price pressures.

A Battle of Central Banks

At its core, the current USD/JPY dynamic reflects a tug-of-war between two central banks moving in opposite directions. The Fed is widely expected to maintain or eventually ease policy as inflation moderates, while the BoJ is cautiously tightening after years of stimulus. This gradual convergence in policy outlooks has made the Yen more attractive than it has been in years.

Still, traders remain cautious. One rate hike alone may not be enough to reverse the broader trend if US data continues to outperform. As a result, USD/JPY is likely to remain sensitive to both BoJ guidance and US macroeconomic surprises in the days ahead.

For now, the pair’s dip toward 155.00 highlights a market at a crossroads. Whether this move develops into a deeper correction or proves to be a temporary pause will depend on how convincingly Japan backs its tightening narrative—and whether the US economy shows signs of slowing.

? Source: FXStreet