12.12.202511:53 Forex Analysis & Reviews: The Yen Has Every Chance to Grow Until the End of the Current Year (There is a Probability of Decline in USD/CAD and USD/JPY)

While the Fed continues lowering interest rates, the Bank of Japan will likely resume cutting its own rates — something the regulator's chairman, Kazuo Ueda, hinted at quite explicitly.

Previously, the Japanese central bank had taken measures aimed at gradually tightening monetary policy. But with the arrival of the new Prime Minister, Sanae Takaichi, the tightening process essentially halted, as she expressed the opposite view — that monetary policy should be eased. This led to a weakening of the yen against the dollar, despite the fact that the Fed resumed rate cuts this year.

Now, given the current situation in both the global and national (Japanese) economies and the prospects of further interest-rate reductions, the Japanese currency has every chance to strengthen significantly against the dollar in the Forex market. In this context, next week's rate decision by the Bank of Japan will be crucial. If the regulator raises interest rates, this will be a strong bullish factor for the yen.

Comparing the actions of other central banks whose currencies are included in the U.S. Dollar Index, we see that they have taken a wait-and-see stance, preferring to follow in the wake of the Fed's monetary policy. In this situation, the Japanese regulator is demonstrating its own independent view and policy direction.

So, what can we expect in the markets today and at the beginning of next week?

I believe demand for company stocks will remain supported against the backdrop of the Fed's monetary easing. Meanwhile, the U.S. dollar will continue to decline, as the Federal Reserve signaled at Wednesday's meeting that further rate cuts are possible, and central banks whose currencies are part of the dollar basket — with the exception of the yen — have paused, keeping their interest rates unchanged.

The most promising scenario, in my opinion, is a decline in the USD/JPY pair due to the expected wide divergence in interest-rate levels. Riding this wave, the pair may fall to 153.00 yen per dollar by the end of the year.

Forecast of the Day:

USD/JPY

The pair is trading above 155.50. A break below this level could technically lead to a continuation of the corrective decline that began in November. The expected divergence between the interest rates of the Fed and the Bank of Japan will support the yen if the BoJ decides to raise rates next week. Under this scenario, the pair could first fall to 154.60, and then to 153.00 by the end of the month. A level of 155.39 may serve as an entry point for short positions.

USD/CAD

The pair is trading below 1.3800, which may allow it to continue declining toward 1.3720 amid overall weakness of the dollar in the Forex market. A level of 1.3753 may serve as a trigger for selling.