• Japan’s consumer sentiment deteriorated in December.

• Trump might declare a national emergency to facilitate his tariff program.

• Private employment growth in the US was slow in December.

The USD/JPY outlook shows uncertainty regarding Bank of Japan rate hikes that have kept most traders on the sidelines. Moreover, the pair has maintained a sideways move ahead of the crucial US nonfarm payrolls report. 

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Wednesday’s data revealed Japan’s consumer sentiment deteriorated in December, lowering expectations for BoJ rate hikes. Bank of Japan policymakers have been cautious since late last year due to uncertainties about US policies.

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However, they have monitored local economic data for signs of improving consumption and price pressures. The central bank is waiting for signs that inflation will sustainably reach the 2% target. Therefore, downbeat data lowers the likelihood of a near-term rate hike. 

On the other hand, former BoJ chief Haruriko Kurada said the central bank will keep hiking interest rates since inflation is on a path to the 2% target. A rate hike will likely revive the yen, which has suffered under a strong dollar.

The US dollar strengthened on Wednesday after reports that Trump might declare a national emergency to facilitate his tariff program. Tariffs on imported goods will boost the economy and increase price pressures. Meanwhile, data revealed that private employment growth was slow in December. However, unemployment claims fell further last week. 

USD/JPY key events today

Market participants do not expect high-impact reports from Japan or the US today. However, the upcoming nonfarm payrolls report will likely increase volatility.

USD/JPY technical outlook: Bulls fading near 158.02 resistance

On the technical side, the USD/JPY price remains in its tight range, with the nearest resistance at 158.02 and the nearest support at 156.03. Although bulls are struggling to make higher highs, the RSI is trending down with lower highs. This is a sign that bullish momentum is fading. Therefore, bears might be preparing to take charge. 

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If the divergence plays out, the price will break below the 30-SMA and likely break out of the range. Such an outcome would signal a reversal, allowing USD/JPY to revisit lower support levels like 153.02. 

However, if there is a resurgence in bullish momentum, the price might break above 158.02 to make a new high and continue the previous bullish trend.

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