USD/JPY dips ahead of expected BOJ hike – OCBC

USD/JPY softened as UST yields slipped, with the market largely pricing in a 25bp Bank of Japan (BOJ) hike this Friday and another in 2026. Tankan data showed sentiment at large manufacturers improving, but any sustained Japanese Yen (JPY) recovery will hinge on BOJ guidance, fiscal prudence, and a softer USD. USD/JPY was last at 154.86 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Markets eye 2026 BOJ policy path

"USD/JPY traded lower, owing to slippage in UST yields while market optimism over BOJ hike this Friday remains intact. Market still implied about 95% probability of a 25bp hike at the upcoming BOJ MPC (19 Dec) while also pricing in another 1 hike for 2026. Latest Tankan survey showed that index of sentiment at large manufacturers rose to 15 for 4Q, from 14 in 3Q survey."

"We believe markets are going into the BOJ meeting looking for clues about 2026 policy normalization profile and not just about December’s meeting outcome. Any meaningful recovery in JPY would require not just the BOJ to follow through with stronger guidance but also for policymakers to demonstrate fiscal prudence and for the USD to stay soft."

"Mild bearish momentum on daily chart intact while RSI fell. Risks somewhat skewed to the downside. Next support at 154.20/40 levels (76.4% fibo retracement of 2025 high to low, 50 DMA). Resistance at 156 (21 DMA), 157 and 158.87 (previous high in 2025)."