USD/JPY is expected to fall into the ¥156 range next week, affected by caution over AI-related stocks and movements in US interest rates. The focus will be on whether expectations for a December BoJ rate hike support further yen appreciation.
USD/JPY fell at one point this week to around ¥156.08, breaking lower from a period of consolidation near ¥158. The move was driven by renewed caution over US AI-related stocks, a decline in long-term US Treasury yields and risk-averse yen buying. Next week, the Federal Open Market Committee (FOMC) and the Bank of Japan's monetary policy meeting are scheduled around the same time, putting the two central banks' policy direction and any change in expectations for a December rate hike in focus.
Expectations for a December BoJ rate hike eased from the previous day, but the market-implied probability of a rate hike at the December meeting remains high at around 62.8%. Japan's September CPI exceeded market expectations, with core CPI up 2.1% year on year and the index excluding fresh food and energy up 2.4%, but a further rate hike is not yet regarded as certain. Depending on policy developments in Japan and the United States, yen-buying and yen-selling could flare up again.
Volatility in AI-related stocks is continuing, and earnings announcements from Microsoft, Alphabet and Amazon will influence market caution. Even if US yields recover at times depending on movements in long-term US interest rates, renewed yen buying is possible if the stock selloff continues. External risk factors, including the situation in the Middle East and concerns over France's fiscal position, are also present, suggesting that USD/JPY could struggle to recover.
Technically, USD/JPY's daily Bollinger Bands have shifted from narrowing to widening, suggesting that the downtrend will continue. Initial resistance lies at ¥157.40–¥157.55, while a recovery into the ¥157.90 range would create room for a rebound. On the downside, around ¥156.00 is an important level, and a break below it could send the pair toward the low ¥155s. Next week, the key question will be whether the pair again tests its lows while struggling to recover around ¥157.50, or whether a rebound in US yields weakens the downward trend.
Key events and economic indicators scheduled for next week include the US October Consumer Confidence Index, the FOMC interest-rate decision, the Fed chair's press conference, earnings announcements from major companies, US GDP and the PCE deflator, and the ECB interest-rate decision. The BoJ's monetary policy meeting outcome and Outlook for Economic Activity and Prices report are also due, and developments in inflation and the outlook for monetary policy could affect the yen.