USDJPY uptrend breakout raises correction risk

The USDJPY currency pair reached a 10-month high in late November and then entered into a correction. This pullback appeared healthy and did not concern buyers. However, this week the situation has changed, with the price breaking out of the uptrend from October's lows. Although the pair has not collapsed, the environment has become way less comfy for holders of long positions. Bears are unlikely to settle upon reaching the 23.6% Fibonacci retracement at 155.2. Their next target could be the 38.2% level at 153.6.

The technical picture offers little support to halt the decline. Both the RSI and MACD indicators have recently pulled back from excessively high values, holding far from oversold territory. So, the path toward the 153.6 level is clear, but traders should remain cautious. It is advisable to lock in profits on short positions as this level is approached. However, the 50-day moving average will preclude the pair’s deeper fall.

In the meantime, comments from Bank of Japan (BoJ) Governor Kazuo Ueda continue to back the yen. On Monday, he said that officials would thoroughly assess the case for an interest rate hike at the December 19 meeting, instantly pushing market expectations of such a move above 80%. Ueda also confirmed the BoJ’s intent to tighten monetary policy until borrowing costs reach a neutral range between 1% and 2.5%. Thus, two to eight more rate hikes might be projected.

According to Reuters surveys, the yen is predicted to have the highest upside potential among twenty other major currencies in 2026, with forecasts of a 7.5% gain against the US dollar. Both BoJ and Fed actions are likely to support this dynamic. Investors have almost no doubts about a December rate cut by the American regulator following yesterday’s ADP employment report. November saw a loss of 32,000 jobs in the United States, the worst reading since March 2023.

Take a look at the following trading strategy:

Sell USDJPY at the current price. Place Take profit at 153.6 and Stop loss at 156.5.