15.12.202519:20 Forex Analysis & Reviews: USD/JPY. Analysis and Forecast

At the start of the new week, the Japanese yen strengthened against the U.S. dollar, pushing USD/JPY down to the psychological level of 155 as investors digested the results of the Q4 Tankan survey.

According to the quarterly Tankan survey published by the Bank of Japan on Monday, the index for large Japanese manufacturers rose to 15 in the fourth quarter of 2025, up from 14.0 previously. Forecasts were also released, showing that the outlook index for major manufacturing companies stands at 15.0, compared with 12.0 in the previous report.

Commenting on the survey results, a senior Bank of Japan official said that companies cited reduced uncertainty over U.S. trade policy and steady demand in the high-tech sector as the main reasons for improved business sentiment. Other factors supporting positive expectations include the ability to pass some costs on to consumers and strong demand, confirming a favorable business environment.

According to a recent statement by Bank of Japan Governor Kazuo Ueda, the central bank is approaching its inflation target. This supports market expectations of an interest rate hike by the Bank of Japan at the conclusion of its upcoming meeting on December 18–19, thereby reinforcing the case for further policy tightening in 2026.

Moreover, reports indicate that senior officials in Prime Minister Sanae Takaichi's cabinet are unlikely to oppose a Bank of Japan rate hike.

As a result, attention will be focused on Ueda's press conference after Friday's meeting. Meanwhile, Takaichi's large-scale spending plan has heightened concerns about Japan's public finances amid sluggish economic growth, which in turn is seen as another factor limiting gains in the Japanese yen.

On the other hand, the U.S. dollar remains stuck near a two-month low reached last Thursday amid expectations of a dovish Federal Reserve policy stance. The Fed has signaled that it cannot afford complacency regarding further rate cuts, although traders are pricing in two additional rate cuts next year.

Meanwhile, U.S. President Donald Trump said he has narrowed the list of candidates to replace Jerome Powell as Fed chair and expects his nominee to deliver lower interest rates. The prospect of a Trump-aligned Fed chair has put additional pressure on the U.S. dollar.

For better trading opportunities, market participants should also keep an eye on the release of key U.S. macroeconomic reports this week, including the delayed October Nonfarm Payrolls (NFP) report due on Tuesday and the latest inflation data on Thursday. Diverging outlooks between the Bank of Japan and the Federal Reserve may continue to support the Japanese yen.

From a technical perspective, the decline in USD/JPY has brought prices to the psychologically important 155.00 level, shifting focus to the December low around 154.35 and the 50-day moving average near 154.15. However, a full confirmation of a bearish reversal cannot yet be claimed, as the daily RSI has not fallen below the 50 level.