Investing in USDJPY after Fed’s December dovish turn

The USDJPY pair is currently trading near 155.500, having nosedived after December’s meeting of the Federal Reserve (Fed). The dollar took a hit once interest rates were reduced by 25 basis points. However, Chair Jerome Powell sounded rather hawkish, outlining a high potential for a pause in the easing cycle. This underpinned the greenback, limiting its decline.

On the flip side, the yen is now gaining upward momentum on growing expectations that the Bank of Japan (BoJ) will raise borrowing costs. Governor Kazuo Ueda has recently indicated a readiness to increase government bond purchases in response to a surge in long-term rates, reinforcing speculation about an imminent monetary tightening. Improved business optimism among major Japanese manufacturers, which has reached a one-year high, is providing additional support for the yen.

However, the Asian economy still has an uphill battle ahead, with slowing GDP growth and a challenging fiscal position. Furthermore, ongoing trade tensions with China pose additional risks for local businesses. On top of that, a wide interest rate differential between Japan and other major economies keeps exerting pressure on the yen.

Following yesterday’s sharp decline, the USDJPY pair is now trying to regain some of its losses, but the market remains volatile and uncertain. The daily candlestick, which formed a long lower wick after a downward price gap, signals the presence of buyers in this area, preventing a steeper decline. The Stochastic Indicator (69, 59) is still bullish, pointing to further upside potential. The Chaikin Oscillator, in contrast, suggests that strong selling pressure from yesterday is ongoing, reflecting continued capital outflows.

Check out the following trading plan:

Buy USDJPY at the current price, with Take profit at 156.850 and Stop loss at 155.000.

This forecast is valid from December 11 till December 18, 2025.