USD/JPY Rises Ahead of Bank of Japan Decision as Traders Assess Outlook
Dollar recovers against the yen as the BoJ is set to hike, but what's in store for 2026?
USD/JPY rose 0.6% through midday trading on Wednesday as the Japanese Yen weakened against other currency pairs. The dollar remains slightly weaker against the Yen since the start of the month following several months of weakness in the Japanese currency.
Since April, USD/JPY has risen over 10% with the Bank of Japan (BoJ) failing to satisfy hawkish policy expectations. The fiscal situation in Japan hasn’t helped the currency, as Prime Minister Sanae Takaichi’s spending plan has bolstered debt concerns.
Meanwhile, the Bank of Japan has grown more confident in its outlook that the economy and inflation will meet targets. Rate cut bets for the Federal Reserve have also strengthened, which perhaps leaves further dollar appreciation versus the Yen in question.
The BoJ also expects wage gains to keep pace next year, according to a survey released earlier this week. With December rate hike now being mostly priced into the currency, traders will look for signals from the BoJ on the path of rate hikes.
USD/JPY Daily Price history
Technically, USD/JPY is trading in a bull flag pattern, with a double bottom pattern formed. Yesterday’s prices dropped below the 35-day exponential moving average (EMA) before finishing the session back above the level. Now, prices have overtaken the 21-day EMA.
A break above trendline resistance in the flag pattern would give way to a continuation of the previous trend. Traders would target the 158 level where prices stalled just below back in November.
Thursday night’s BoJ decision will ultimately hold the key to forward price action, with the decision expected to cross the wires around midnight ET. The announcement is expected to yield the second rate hike of the year, but forward guidance will most likely be the driver of USD/JPY price action into the weekend.
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