Yen Soars As Ueda Signals Solid Rate-Hike Possibility. Forecast as of 01.12.2025
Kazuo Ueda’s hawkish rhetoric was enough to reverse a bullish trend in the USD/JPY pair. The resumption of overnight rate hikes amid the Fed’s continued monetary expansion cycle boosted the Japanese yen. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The Bank of Japan and the government have found common ground.
- The odds of a BoJ rate hike in December have increased.
- Tokyo intends to ramp up bond issuance.
- Short trades opened at 156.8 on the USD/JPY pair can be increased.
Weekly Fundamental Forecast for Yen
Bank of Japan Governor Kazuo Ueda has signaled an overnight rate hike in December, emphasizing that he had smooth communication with the government. Sanae Takaichi is a proponent of ultra-loose monetary policy, but even she could not resist the need to slow inflation. As a result, the chances of resuming the normalization cycle increased, allowing the USD/JPY pair to develop a correction.
As a rule, proper wording is crucial. For example, a rate hike can be presented as a tightening of monetary policy, or as an adjustment to an already ultra-loose policy. Indeed, compared to the 4% federal funds rate, Japan’s 0.5% is at an extra low level. Kazuo Ueda opted for the second option, which is undoubtedly less jarring to the government than the first one.
Tokyo CPI YoY
Source: Bloomberg.
According to the BoJ governor, the Governing Board will weigh all the pros and cons of a rate hike and make a decision. Having shifted its focus from uncertainty surrounding the US economy and politics to the weak yen and Tokyo’s inflation rising to 2.8% in November, the futures market increased the chances of monetary tightening in December from 58% to 76%. As a result, USD/JPY bears immediately took advantage of the situation and started to push the pair down.
BNP Paribas called Kazuo Ueda’s speech a preliminary notice of an overnight rate hike in December. Barclays and JPMorgan Securities moved their forecasts for the resumption of the monetary tightening cycle from early 2026 to late 2025. Capital Economics believes that normalization in December is a certainty and predicts two more acts of monetary tightening next year. Since the futures market expects a decline in the federal funds rate to less than 3%, the upward trend in the USD/JPY pair may have reversed.
Indeed, the pair’s decline will be accompanied by prolonged consolidation phases and periods of growth. The reason for such choppy trading lies in the rapid rally of Japanese bond yields to their highest levels since 2008.
Japan’s 2-Year Government Bond Yield
Source: Bloomberg.
The Japanese government wants to increase debt issuance by ¥11.96 trillion to finance Sanae Takaichi’s supplementary budget of ¥18.3 trillion. Excessively rapid growth in debt rates is not part of the prime minister’s plans, as it increases servicing costs. Most likely, the Bank of Japan will continue to proceed slowly on the road to monetary tightening. Against this backdrop, the yen will find itself in a vulnerable position.
Weekly USDJPY Trading Plan
Nevertheless, a trend reversal suggests the possibility of maintaining and increasing short positions opened at 156.8 on the USD/JPY pair.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of USDJPY in real time mode
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