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Key Points:

Japanese producer prices fueled speculation about a December Bank of Japan rate hike on Wednesday, December 10. Producer prices signaled sticky consumer price inflation midway through the fourth quarter. USD/JPY dropped in response to the uptick in producer prices, partially reversing the previous day's 0.63% loss on the hot US JOLTs Job Openings report.

While the November figures bolstered bets about a December BoJ rate hike, traders faced a higher degree of uncertainty on the Fed's monetary policy outlook. Market bets on a December Fed rate cut remained firm despite solid overnight US jobs data.

However, the absence of October inflation and labor market data, canceled because of the US government shutdown, has left the Fed flying blind on crucial reports needed to make an informed interest rate decision and offer meaningful economic projections.

Given these dynamics and USD/JPY's return to 156, the short-term outlook looks cautiously bullish, while the medium-term outlook remains bearish, hinged on the Fed cutting and the BoJ raising rates.

Below, I'll discuss the macro backdrop, the near-term price catalysts, and technical levels traders should closely watch.

Japanese Producer Prices Give BoJ Hawks a Strong Footing

Producer prices increased 2.7% year-on-year in November, mirroring October's trend, lifting demand for the Japanese yen. November's producer prices indicated rising import prices, forcing producers to pass higher costs on to consumers. Higher prices may also signal stronger demand, enabling producers to raise prices and fuel demand-driven inflation.

The BoJ has raised previously concerns about the weaker yen pushing import prices higher, adversely affecting household purchasing power. Rising producer prices will give the BoJ hawks a stronger argument to raise interest rates on December 19.

USD/JPY responded, briefly falling from 156.840 to 156.795 after the data.

USDJPY – One Minute Chart – 101225

The November data followed BoJ Governor Kazuo Ueda's optimistic economic outlook. He stated that the economy will return to growth in the fourth quarter and beyond, reinforcing his recent bullish pivot. Last week, Governor Ueda supported a rate hike, citing strong wage growth, fading US tariff risks, and FX weakness.

While expectations of a BoJ rate hike are strengthening yen demand, the FOMC interest rate decision, FOMC Economic Projections, and Fed Chair Powell's press conference will dictate buyer appetite for the US dollar.

FOMC Interest Rate Decision Looms

Later on Wednesday, the Fed will take center stage as investors await its highly anticipated interest rate decision and Economic Projections. Economists expect the Fed to lower interest rates by 25 basis points, with the CME FedWatch Tool giving an 87.6% chance of a rate cut.

Barring an unexpected hold or a surprise 50-basis-point cut, the market focus will be on the Economic Projections and the dot plot on rate expectations. Notably, the chances of a Q1 2026 rate cut declined overnight.

The FOMC Committee has divided into two camps in recent months. On one side, members support further policy easing to bolster a cooling labor market, while on the other, voters view sticky inflation as a reason to pause further cuts. Given the division among voting members, a hawkish cut looks likely, where the Fed downplays further easing in the near-term, but remains data dependent.

Economic Projections and Dot Plot to Spotlight the Greenback

The Economic Projections and dot plot will provide the crucial insights into the Fed's outlook and potential rate path. For context, the September dot plot projected a 3.25%-3.50% Fed Funds Rate (FFR) by the end of 2026.

A 25-basis-point rate cut today would leave two further rate cuts to align with the September dot plot, the baseline for traders. A dovish Fed rate cut would be a lower FFR by the end of 2026, while a hawkish cut would be a higher 2026 FFR forecast.

Notably, the projections will be based on outdated inflation and jobs data, given the cancellation of October data. The absence of October's government reports may downplay the influence of inflation, unemployment, and GDP projections on US dollar demand. However, given the USD/JPY sensitivity to September's JOLTs job openings, the pair will be exposed to heightened volatility.

Meanwhile, there is also a potential announcement on bond purchases (quantitative easing).

With increased uncertainty about the post-December Fed rate path, the short- and medium-term outlook hinges on the Fed and the BoJ's interest rate decisions and policy outlooks. Despite the uncertainty, the Fed's easing and the BoJ's tightening support a bearish medium-term outlook for USD/JPY.

Technical Outlook: USD/JPY on a Downward Trajectory

Looking at the daily chart, USD/JPY traded above the 50-day and 200-day Exponential Moving Averages (EMAs), signaling a bullish bias. However, fundamentals have begun to shift from the technical trend, supporting a bearish medium-term outlook.

A break below the 155 support level would bring the 50-day EMA into play. If breached, the 153 support level would be the next key support. Significantly, a sustained fall below the 50-day EMA would signal a bearish trend reversal, supporting a near-term drop toward 150.

USDJPY – Daily Chart – 101225

Position and Upside Risk

In my view, a narrow US-Japan rate differential supports a bearish medium-term outlook. A sustained USD/JPY drop below the 50-day EMA would signal a fall toward the 200-day EMA. Breaching the 200-day EMA would affirm a bearish trend reversal.

However, upside risks could derail the bearish momentum. These risks include:

Nevertheless, yen intervention warnings are likely to cap the upside around the November 20 high of 157.893, based on past communication.

Read the full USD/JPY forecast, including chart setups and trade ideas.

Conclusion: Longer-Term Fall to 140 Hinges on the Dot Plot

In summary, the BoJ's support for a December rate hike leaves the Fed in the driving seat. A dovish Fed rate cut, projecting two to three policy adjustments in 2026, and QE would align with the bearish medium-term outlook for USD/JPY. Furthermore, a dovish Fed rate cut could pave the way toward 130 over the 6-12 month time horizon.

Source: FX Empire

The Bank of England expects Rachel Reeves's budget will reduce the UK's headline inflation rate by as much as half a percentage point next year.

In a boost for the chancellor after last month's high-stakes tax and spending statement, Clare Lombardelli, a deputy governor at the central bank, said its early analysis showed the policies would lower the annual inflation rate by 0.4 to 0.5 percentage points for a year from mid-2026.

Reeves made cutting inflation a central ambition of her budget alongside a sweeping £26bn package of tax increases to cover a shortfall in the public finances and fund scrapping the two-child benefit policy.

Her measures to ease the cost of living included removing green subsidies from household energy bills and freezing rail fares. Levies on energy bills will now be paid out of general taxation, which the Treasury said could reduce bills by an average of £150 a year from next April.

The Bank's early assessment, which matches the prediction published by the Office for Budget Responsibility alongside Reeves's statement, said the bulk of the reduction was down to the energy bills measures and the chancellor freezing fuel duty for motorists.

Threadneedle Street is widely expected to cut interest rates at its policy meeting on Thursday next week. Financial markets are anticipating a cut in borrowing costs to 3.75%, down from 4% and the sixth reduction since a recent peak of 5.25% in the middle of last year.

Lombardelli, a member of the Bank's rate-setting monetary policy committee (MPC), said the central bank would take into account Reeves's budget measures, although cautioned that longer-term inflation prospects would be important to take into account.

Although Reeves's measures will have a short-term impact on bringing down headline inflation, other government policy measures could push up the rate in future. Business leaders have warned higher employment costs from a rising living wage and strengthened package of workers' rights could force them to push up prices.

"This is new information the committee will consider," Lombardelli said of the budget. "[We need to consider] how much are you affected by one-off, one-year short-term impact of inflation."

She said views would differ on the MPC as to where the balance lay, but suggested a short-term headline rate cut could help stifle future inflationary pressures by influencing how businesses and consumers push for wage increases and set prices.

"People's experience of inflation changes how they may respond," she said. "Energy is a really strong example of that. These are very visible cost reductions in that space."

While the chancellor's measures aim to reduce bills, other costs are due to be added soon to cover the £28bn of spending on Great Britain's gas and electricity grids approved by the regulator Ofgem last week.

Headline inflation has fallen back from a peak of over 11% in late 2022, before accelerating again this year amid a rise in food prices, energy costs, utility bills, and as businesses passed on the cost of tax increases.

Despite a fall to 3.6% in October, the headline rate remains above the Bank's 2% target. Threadneedle Street has previously signalled that inflation likely peaked at 3.8% this summer, and suggested before the budget that inflation could fall to about 2.5% next year.

Source: GUARDIAN

European Council President Antonio Costa arrives for the second day of the G20 Leaders' Summit at the Nasrec Expo Centre in Johannesburg on November 23, 2025.

The European Union is very close to a solution to finance Ukraine in 2026 and 2027 that would have the support of at least a qualified majority of EU countries, the chairman of EU summits, Antonio Costa, said on Tuesday.

EU leaders pledged on October 23 to bankroll Kyiv for the next two years as Ukraine fights off a Russian invasion and as U.S. financial contributions are drying up.

The leaders are to decide at a summit on December 18 in Brussels how to deliver on their pledge and Costa told reporters in Dublin he would keep them talking for days, if necessary, until they reach an agreement.

Since most EU governments struggle with large public debts, the preferred way for them to finance Ukraine's defence is to put to work some 210 billion euros ($244.15 billion) of Russian sovereign assets immobilised in Europe after Moscow invaded Ukraine in 2022.

Despite the political momentum, the project is not simple because Belgium, where most of the frozen assets are held, wants guarantees from other EU countries they would share any financial repercussions if Russia were to successfully sue Belgium over the scheme.

Discussions to give Belgium the guarantees are under way and will come to a head at the summit - the European Council.

"Now we are working on fine-tuning the legal and technical solution that could obtain the agreement of at least a qualified majority of member states. I think we are very close to obtaining a solution," Costa said.

"For me, it's sure that on the 18th of December we will take a decision. But as I shared with my colleagues, if it's necessary, we will continue on the 19th or the 20th of December - until we reach a positive conclusion," Costa said.

G7 SOLIDARITY

Keeping Ukraine financed and fighting is key for the EU because the bloc sees Russia's invasion of Ukraine as a threat to its own security. Most EU countries believe that as long as Moscow is militarily engaged in Ukraine it will not attack any EU countries, giving Europe time to prepare its defence.

The Commission wants to issue a Reparations Loan to Ukraine of up to 165 billion euros, by asking all institutions in EU countries holding Russian cash to exchange it for EU triple-A bonds issued by the Commission. The cash would then go to Ukraine in installments over the next two years.

To spread the risk of Russian retaliation, Belgium wants other G7 countries holding Russian sovereign assets, such as Britain, Canada or Japan, to replicate the EU scheme.

British Prime Minister Keir Starmer said on November 25 that London was ready to move with the EU on providing financial support to Ukraine based on the value of immobilised assets.

The Guardian newspaper reported on Monday that London was prepared to hand over 8.0 billion pounds of assets frozen in Britain to support Ukraine.

Canada said in October it would explore such an option. Japan has not specified what steps it would take to support Ukraine, while denying a media report it had rebuffed a European Union request to join plans to use frozen Russian assets.

Source: Reuters

Source: Bloomberg Europe

Source: Reuters

Refined products had been one of few tailwinds for crude this year, and the recent demand-driven weakness is exacerbating a sense of bearish gloom ahead of a widely telegraphed glut.

Source: Bloomberg