Yen depreciation against the US dollar accelerates! Central bank intervention signals are frequently being released 【Market Watch】

This Week’s Forex Market Overview

Last week (12/15-12/19), the US dollar index rose by 0.33%, while non-US currencies showed mixed performance. The Japanese yen was under the most pressure, depreciating by 1.28%, the euro slightly retraced by 0.23%, the Australian dollar fell by 0.65%, and the British pound remained largely flat.

Yen Approaching Critical Level, Government Intervention Expectations Rise

USD/JPY surged significantly last week by 1.28%, approaching the 158 level. Although the Bank of Japan raised interest rates by 25 basis points as scheduled, Governor Ueda Kazuo’s dovish tone disappointed the market. Meanwhile, Prime Minister Sanae Takashi’s cabinet announced a record-breaking fiscal stimulus package of 18.3 trillion yen. This ultra-loose policy directly offset the tightening effect of the rate hike, leading to continued weakness of the yen against the dollar.

Institutional forecasts show clear divergence on the Bank of Japan’s future policy. Sumitomo Mitsui Banking Corporation believes that, considering the ongoing Fed rate-cut cycle, the yen could depreciate to 162 against the dollar by Q1 2026. However, JPMorgan warns that if USD/JPY short-term falls below 160, the likelihood of government intervention will significantly increase.

Nomura Securities holds the opposite view, expecting that under the Fed’s rate cuts, the US dollar will weaken in the long term, and the yen will find it difficult to continue depreciating, potentially rising to 155 against the dollar by Q1 2026.

From a technical perspective, USD/JPY has broken through the 21-day moving average, with MACD signaling a buy. If it breaks through the 158 resistance level, further upside potential will open. Conversely, if it remains under pressure below 158, 154 will serve as a support level.

Key points to watch this week: The tone of Bank of Japan Governor Ueda Kazuo’s speeches and the intensity of Japan’s official verbal interventions, both of which will directly influence the USD/JPY trend.

Euro Rises Then Falls, Fed Rate Cut Expectations for 2026 Face Uncertainty

EUR/USD showed a rise followed by a decline last week, ending down 0.23%. The European Central Bank kept interest rates unchanged as expected, but President Lagarde did not signal a hawkish stance as the market had anticipated.

US economic data was mixed. November non-farm payrolls showed some bright spots, but November CPI data fell short of expectations. Major investment banks like Morgan Stanley and Barclays pointed out that these figures are heavily affected by seasonal adjustments and statistical noise, making it difficult to accurately reflect the true economic trend.

The market currently expects the Fed to cut rates twice in 2026, with a roughly 66.5% probability of a rate cut in April. Danske Bank states that as the Fed enters a rate-cut cycle while the ECB maintains rates, the real interest rate differential after inflation adjustment may narrow, supporting euro appreciation against the dollar. Additionally, the recovery of European asset markets, increased hedging demand against dollar depreciation, and declining confidence in US policy measures could also boost the euro.

On the technical side, EUR/USD remains above multiple moving averages, with short-term momentum still bullish. The previous high near 1.18 is a key resistance. If it pulls back, the 100-day moving average around 1.165 will serve as support.

Focus this week: US Q3 GDP revision data and geopolitical risks. Better-than-expected GDP data will favor the dollar and pressure EUR/USD; escalation in geopolitical tensions could boost euro safe-haven demand.