USD/JPY pulls back, knocks back below 157.00

• USD/JPY shed 0.7% on holiday-thinned market volumes on Monday.
• It’s a thin data docket on both sides of the Pacific, but US PMI figures loom ahead.
• Investors remain unsure of what signs the BoJ is waiting for to pull the rate hike trigger.

USD/JPY corkscrewed on Monday, backsliding seven-tenths of one percent and getting knocked back below the 157.00 handle as markets push back into the midrange ahead of the midweek New Year’s holiday closures. The year-end holiday session is in full swing, and broad-market volumes remain low.

The Bank of Japan (BoJ) has been fighting a hopeless battle trying to reverse a two-year decline in the Japanese Yen, pulling out all of the stops and attempting every policy tool at its disposal except raising interest rates. The BoJ reversed its negative-rate policy in March of 2024, followed by a tentative half-step in allowing interest rates to rise, reaching a blustery 0.25% before again freezing on policy rates. Nobody is particularly sure of what data will convince the BoJ to raise rates again, but the Japanese central bank has vowed to remain in a data-dependant approach on interest rates.

Both Japanese and US trade volumes are crimped as markets head into the New Year’s midweek holiday before the calendar rolls over into 2025. The US will kick things off next year with a fresh round of ISM Manufacturing Purchasing Managers Index (PMI) figures on Friday, with little else of note until then.

USD/JPY price forecast

Despite Monday’s bearish candle, USD/JPY is still holding deep into bull country, testing the waters near 157.00 after a brief push into the 158.00 handle. The pair rebounded off of the 200-day Exponential Moving Average (EMA) near 150.00, rising 6.35% bottom-to-top in the process.

The trick for buyers will be keeping the Greenback bid north of the 50-day EMA rising through 153.00. A break below this level could see price action return to the 200-day EMA currently grinding higher above 151.00.

USD/JPY daily chart