USDJPY poised to extend its decline

The USDJPY currency pair reached a technical target at 157.00 before resuming its decline. The next significant threshold is likely to be 150.00. However, a retest of the 157.00 level isn’t excluded.

Expectations of a widening policy divergence between the Federal Reserve (Fed) and the Bank of Japan (BoJ) are pushing USDJPY lower, with the US dollar losing its strength in anticipation of a potential December rate cut in the US and the yen finding support from the national regulator's increasingly hawkish stance.

The reasons for such policy decisions are quite simple: the countries have different economic conditions and face their own challenges. While the United States was suffocating under strong inflationary pressures after the COVID-19 pandemic, Japan had been fighting deflation and stagnation for decades. Therefore, the Fed had to aggressively increase interest rates to curb soaring consumer prices. The BoJ, in turn, adhered to an ultra-loose policy to support the national economy. Japan's inflation has recently climbed above 2%, allowing the regulator to begin normalizing its monetary conditions.

Today, the US Personal Consumption Expenditures (PCE) indices are expected to be released. Along with Consumer Price Indices (CPI), they reflect the inflation situation. A rise in recent readings could temporarily strengthen the dollar and bring the USDJPY pair back to the 157.00 level. Fundamentally, this will not change the pair's medium-term downtrend, but a retest of this threshold will give traders an opportunity to open short positions at a better risk-reward ratio.

The overall recommendation is to sell USDJPY. Profits should be taken at the level of 150.00. Stop Loss could be set at 161.00.

The volume of the open position should be calculated so that the potential loss (protected by a Stop Loss order) does not exceed 1% of your deposit. If your account balance does not allow opening a position of this size, it is better to avoid entering the market on this signal and wait for other trade options that meet low-risk criteria.