While expectations of a BoJ rate hike are strengthening yen demand, key US data will fuel speculation about multiple Fed rate cuts.
US Inflation in Focus as the Fed Decision Looms
Later on Monday, US economic data will influence USD/JPY trends as the FOMC interest rate decision and projections loom. Economists expect Consumer Inflation Expectations to soften from 3.2% in October to 3.1% in November.
A drop in the NY Fed 1-Year Consumer Inflation Expectations would align with last week’s inflation data, supporting bets on a Fed rate cut. A more dovish Fed rate path would weaken demand for the US dollar, sending USD/JPY lower, aligning with my bearish short- to medium-term outlook.
For context, the US Core PCE Price Index rose 2.8% YoY in September, down from 2.9%, while Michigan Inflation Expectations fell from 4.5% in November to 4.1% in December.
The prospect of a December Fed rate cut, further easing in H1 2026, and BoJ rate hikes are key for USD/JPY trends.
According to the CME FedWatch Tool, the probability of a December cut stood at 88.4% on December 8, up from 86.2% on December 5. Meanwhile, the chances of a March rate cut slipped from 46.5% to 46.1%.
With markets already pricing in a December cut, traders should closely monitor the chances of a March cut.
While key US inflation data will influence US dollar demand, there are no FOMC member speeches to overshadow the reports. The Fed’s Blackout Period is in effect until December 11, limiting Fed-driven volatility.
Technical Outlook: USD/JPY on a Downward Trajectory
Looking at the daily chart, USD/JPY remained above the 50-day and 200-day Exponential Moving Averages (EMAs), indicating a bullish bias. However, fundamentals have begun to shift from the technical trend, supporting a bearish outlook.
A drop below the 155 support level would pave the way toward the 50-day EMA. If breached, the 153 support level would be the next key support. Significantly, a break below the 50-day EMA would signal a bearish trend reversal, signaling a near-term drop toward 150.
