The USD/JPY currency pair is showing very bearish indications. This negative trend comes after its failure to regain re-acquire above the 100-hour Simple Moving Average (SMA). This bearish trend has been clear as the two have recently continued to trade under the important psychological level of 155.00. Analysts suggest that the ongoing struggle for the USD to capitalize on its previous recovery highlights the growing influence of shifting market dynamics and economic indicators.
The overall market sentiment has turned against the USD/JPY pair with a focus on bearishness, thanks largely to the acceptance under the 155.00 threshold. This psychological threshold has long been a huge hurdle. The inability to reclaim it shows that sell-side is potentially still too strong. Recent reports indicate that the Federal Reserve is expected to cut interest rates again in December, further complicating the USD’s recovery efforts.
At the same time, the yield differential between Japan and its G7 counterparts is shrinking. This combined effect has even increased the amount of global capital flowing into the lower-return Japanese Yen (JPY). Consequently, the local currency value of its USD holdings has increased significantly. For that reason, investors are watching these developments closely. They think these changes may be a sign of a broader shift in monetary policy that would support a stronger yen.
Further recovery beyond 155.00 is at risk. Yet, it is expected to run into stiff opposition near the 155.40 level, where it intersects with the 100-hour SMA. Traders will want to keep a close eye on this zone. If the asset is unable to reclaim this level, it may further fuel bears’ conviction. Yet, if buying interest picks up, a challenge of the 156.60-156.65 area can’t be ruled out.
The next barrier now stands at the 157.00 level, which is yet another key psychological barrier for traders in this popular currency pair. Only time will tell what lies ahead for the USD/JPY. Yet both macroeconomic fundamentals and technical analysis suggest further extreme price volatility could be on the horizon.
Japan’s recent economic data only compounds these problems. It shocked markets by showing a 2.9% year-on-year drop in household spending for October. This figure marks the steepest drop since January 2024. That puts the whole consumer confidence narrative and Japan’s economic recovery in serious jeopardy. Those numbers might muddy the waters when it comes to Japan’s economic picture. In so doing, they have changed the calculus on the Bank of Japan’s future monetary policy decisions.
Against all odds, the Japanese Yen continues to be the best performing. However, market expectations are building for more policy normalization from the BoJ. This widespread sentiment is helping to create a supremely positive environment for the JPY, as fundamental economic indicators continue to point in a mixed direction at best.
The USD/JPY pair is set to post weekly declines. Its recent drop comes after a multi-month high set last November. Overall bearish sentiment towards the USD is increasing. At the same time, positive factors for the JPY are developing, so JPY longs should be careful with their exposure.