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💹 USD/JPY: Downside Risks Becoming Increasingly Clear

💹 USD/JPY: Downside Risks Becoming Increasingly Clear

— Policy Expectations in Japan and the U.S. Reverse Simultaneously, Narrowing the Rate Differential**

1. USD/JPY: Diverging Policy Directions Increase Downside Pressure

In today’s overseas session, the environment calls for heightened caution over further downside in USD/JPY.

■ BOJ: December Rate-Hike Expectations Surge

Governor Ueda signaled a clear shift in stance, stating:

  • “Policy adjustments will be discussed at the December meeting”

  • “A gradual reduction of monetary accommodation is appropriate”

  • Concerns over “the negative inflationary impact of yen depreciation”

As a result, market expectations turned sharply:

  • Previous view: First rate hike in January

  • Current view: December hike now highly plausible

The JGB market is already pricing in a near-term rate hike.

■ U.S.: December Rate-Cut Expectations Jump Sharply

  • Post-FOMC minutes: Rate-cut probability 35%

  • Now: 87.6%

Japan potentially hiking while the U.S. moves toward cutting
→ Japan–U.S. yield spread narrows sharply
→ A structural bearish factor for USD/JPY.

■ Tokyo Session: Sharp Drop to Mid-155s

During Tokyo hours, USD/JPY broke below 156 and fell toward 155.40.

If U.S. PMI or ISM prints weak once NY opens,
a renewed test of sub-155 becomes increasingly likely.

2. Europe–U.S. Data Flood: ISM Manufacturing Is the Key Event

■ Europe (mostly final readings)

  • France/Germany/Eurozone PMI final

  • Turkey GDP

  • Switzerland retail sales

  • UK consumer credit & M4

European surprises may move the euro and indirectly affect USD/JPY via broad USD flows.

■ United States

  • ISM Manufacturing (Nov)
    Forecast: 49.0 (Prev: 48.7)

Weak ISM → Stronger rate-cut expectations → USD selling → USD/JPY downside

3. United Kingdom: Weak Household Data Boost Rate-Cut Expectations

Recent UK data came in softer:

  • Consumer credit slowed (below forecast)

  • Mortgage lending decelerated

→ High rates are clearly hitting households.

However:

  • Consumer credit YoY: +7.2%

  • Mortgage approvals: 665k (above post-COVID average)

The economy is slowing but not in recession,
leaving the BOE in a tight spot between inflation concerns and household stress.

4. U.S. Dollar Index Near Lows Not Seen Since Nov 17

The DXY is trading in a weak 99.28–99.51 range.

Main driver: sharp USD/JPY decline

  • USD weaker vs EUR

  • USD stronger vs GBP
    → Mixed across pairs, but overall USD bias remains lower

DXY: 99.34 (-0.12%)

5. Other Headlines (UK/U.S.)

  • BOE’s Dhingra to participate in panel discussions

  • PM Starmer to deliver remarks in London

  • Fed enters blackout period until Dec 11

  • Cyber Monday headlines may influence consumer sentiment

✔ Summary: Downside Bias in USD/JPY Has Become Increasingly Clear

Bearish Drivers

  • BOJ December hike expectations surge

  • U.S. December rate-cut expectations accelerate
    → Yield-spread compression hitting USD/JPY directly

Event Risk

ISM = key turning point

  • Weak ISM → test below 155

  • Strong ISM → short-term rebound toward upper-156s

⭐ Medium-Term Outlook: Rebounds Likely to Be Sold

Even if USD/JPY bounces, the medium-term bias remains downward, because:

  • Yield spread is set to keep narrowing

  • Policy-shift expectations are now a dominant market theme

  • Intervention fears cap the upside

  • Seasonal real-demand yen buying increases into year-end

➡ Medium-term USD/JPY likely to remain a “sell-on-rally” market.

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