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Yen selling remains the dominant theme heading into the weekend, with the currency staying as the weakest performer. The renewed slide comes despite the BOJ lifting interest rates to their highest level since 1999. The problem for Yen bulls is not the direction of policy, but the pace. BoJ normalization is widely expected to remain slow and cautious, with policymakers clearly unwilling to risk choking off fragile momentum in growth and wages.

Market consensus has now converged on the view that the next BoJ hike is unlikely to arrive until mid-2026. Even then, policy rates would only move toward the lower bound of the estimated neutral range, roughly between 1.00% and 2.50%. Some investors are already questioning whether the cycle will go any further. There is growing speculation that 1.00% could ultimately mark the terminal rate of the current tightening phase, limiting the scope for sustained Yen appreciation.

While there is theoretical room for rates to move deeper into neutral, that would require tangible evidence of stronger domestic demand. In particular, markets will look for results from Prime Minister Sanae Takaichi’s fiscal stimulus efforts, alongside clear proof that wage growth can be sustained into 2026.

Elsewhere, Dollar trading has steadied after New York Fed President John Williams reinforced skepticism around November’s CPI data. His remarks that the report was likely distorted validated market hesitation to push Dollar lower earlier in the week. As a highly influential Fed voice, Williams’ comments were taken seriously and helped anchor expectations that policy repricing will remain limited in the near term, probably until the December NFP data after holidays.

For the week so far, Kiwi sits at the bottom of the FX performance table, followed by Yen and Aussie. Swiss Franc leads, ahead of Sterling and Dollar, while Euro and Loonie remain positioned in the middle as markets.

In Europe, at the time of writing, FTSE is up 0.15%. DAX is up 0.19%. CAC is down -0.06%. UK 10-year yield is up 0.041 at 4.531. Germany 10-year yield is up 0.044 at 2.897. Earlier in Asia, Nikkei rose 1.03%. Hong Kong HSI rose 0.75%. China Shanghai SSE rose 0.36%. Singapore Strait Times fell -0.02%. Japan 10-year JGB yield rose 0.057 to 2.024.

Fed’s Williams flags CPI distortions, plays down urgency to cut again

New York Fed President John Williams said today that November’s inflation data were likely distorted by "technical factors", cautioning against overinterpreting the downside surprise. He estimated that such distortions may have pushed the CPI reading down by around a tenth of a percentage point.

Williams said it remains difficult to fully assess the size of the impact until December data become available, which should provide a clearer picture of how much the technical effects influenced November’s figures.

On policy, Williams struck a measured tone, saying he does not feel a "sense of urgency" to lower interest rates further. He argued that the cuts already delivered have positioned the Fed well to continue easing inflation pressures while also supporting a labor market that is cooling in an orderly fashion.

Canada retail sales fall -0.2% mom in October, November rebound eyed

Canada’s retail sales edged down by -0.2% mom to CAD 69.4B in October, extending signs of soft consumer demand. Sales declined in four of nine subsectors, led by weakness at food and beverage retailers, pointing to ongoing pressure on discretionary spending.

Underlying momentum was weaker than the headline suggested. Core retail sales, excluding autos and gasoline, fell -0.5% mom. Sales volumes declined -0.6% mom.

Statistics Canada’s advance estimate points to a 1.2% mom rebound in November. While the estimate is based on a lower-than-usual response rate of 60%, it hints at a potential stabilization in consumption as financial conditions ease, though confirmation will depend on the final data.

BoJ raises rates to 0.75%, keeps tightening bias intact

The BoJ raised its policy rate by 25bps to 0.75%, as widely expected, marking another step in its gradual normalization process. Despite the hike, the BoJ emphasized that financial conditions remain highly accommodative, with real interest rates still “significantly negative.”

In its statement, the BoJ reaffirmed a tightening bias. If the outlook laid out in the October 2025 Outlook Report is realized, the Bank said it will "continue to raise the policy interest rate". Policymakers also expressed increased confidence that the likelihood of realizing the outlook "has been rising".

At the post-meeting press conference, Governor Kazuo Ueda stressed future adjustments will depend on incoming data on economic, price, and financial conditions, with policy decisions reassessed at every meeting rather than following a preset path.

On the neutral rate, Ueda acknowledged substantial uncertainty. He described the estimate as sitting within a wide range and said they would assess how the economy and prices respond to each rate move. "We will seek to produce new estimates on Japan's neutral rate, if needed, though I don't think that will help us narrow the range that much," he added.

NZ trade deficit narrows to ND -163m on 9.2% yoy exports surge

New Zealand’s trade balance surprised to the upside in November, with the deficit narrowing sharply to NZD -163m, far smaller than expectations for a shortfall of around NZD -1.2B. The improvement was driven by a solid pickup in exports, which rose 9.2% yoy, or NZD 588m, to NZD 7.0B.

Export performance was mixed by destination. Shipments to Australia surged by 31% yoy, while exports to the EU also rose strongly by 51% yoy. By contrast, exports to China slipped modestly by -0.7%yoy, while shipments to the US fell sharply by -17% yoy, and Japan by -1.9% yoy.

Imports rose at a more moderate pace of 4.4% yoy to NZD 7.2B. Gains were led by stronger inflows from the US (36% yoy), EU (17% yoy) and South Korea (20% yoy). Imports from China rose a modest 1.7% yoy. Imports from Australia declined (-7.7% yoy).

NZ ANZ business confidence hits 30-year high as cyclical recovery gathers pace

New Zealand business confidence surged in December, with the ANZ headline index jumping from 67.1 to 73.6. Firms’ own activity outlook rose sharply from 53.1 to 60.9. Both readings are the strongest in 30 years, pointing to a broad-based improvement in sentiment as the economic cycle turns.

Inflation indicators ticked up modestly but remain contained. The share of firms expecting to raise prices in the next three months rose one point to 52%, while those anticipating cost increases climbed two points to 76%. Inflation expectations, however, were unchanged at 2.69%, suggesting confidence is improving without triggering a renewed inflation scare.

ANZ said “things are clearly looking up,” noting that the earlier slowdown was deliberately engineered by tight monetary policy. With that restraint easing, interest rates and the exchange rate both well below their peaks, and the RBNZ signaling no intention to hike rates any time soon, cyclical forces appear firmly supportive of recovery.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 155.23; (P) 155.61; (R1) 155.93; More...

USD/JPY's rally continues today and the break of 156.94 solidify that case that corrective pattern from 157.88 has completed with three waves to 154.38. That is, rally form 139.87 is ready to resume. Intraday bias is back to the upside for 157.88 and above. Firm break of 158.85 key structural resistance will be an important medium term bullish sign. Next target will be 158.85 high. Risk will now stay on the upside as long as 154.38 support holds, in case of retreat.

In the bigger picture, corrective pattern from 161.94 (2024 high) could have completed with three waves at 139.87. Larger up trend from 102.58 (2021 low) could be ready to resume through 161.94 high. Decisive break of 158.85 structural resistance will solidify this bullish case and target 161.94 for confirmation. On the downside, break of 150.90 resistance turned support will dampen this bullish view and extend the corrective range pattern with another falling leg.

Daily Pivots: (S1) 1.1704; (P) 1.1734; (R1) 1.1754; More….

EUR/USD is still bounded in range below 1.1803 and intraday bias stays neutral. On the upside, break of 1.1803 will resume the rally from 1.1467 to retest 1.1917 high. Decisive break there will resume larger up trend. On the downside, however, firm break of 55 D EMA (now at 1.1640) will turn bias back to the downside for 1.1467 support, to extend the corrective pattern form 1.19717 with another falling leg.

In the bigger picture, as long as 55 W EMA (now at 1.1373) holds, up trend from 0.9534 (2022 low) is still in favor to continue. Decisive break of 1.2 key psychological level will carry larger bullish implication. However, sustained trading below 55 W EMA will argue that rise from 0.9534 has completed as a three wave corrective bounce, and keep long term outlook bearish.

Daily Pivots: (S1) 1.3333; (P) 1.3390; (R1) 1.3439; More...

GBP/USD is still bounded in tight range below 1.3455 and intraday bias stays neutral. On the upside, above 1.3455 will resume the rebound from 1.3008. Firm break of 1.3470 resistance will pave the way to retest 1.3787 high. However, sustained break of 55 D EMA (now at 1.3298) will argue that the rebound has completed. Deeper fall would be seen back to 1.3008 support to resume the whole corrective pattern from 1.3787 high.

In the bigger picture, current development suggests that fall from 1.3787 is merely a corrective move, and larger rise from 1.0351 (2022 low) is still in progress. Firm break of 1.3787 will target 1.4248 (2021 high) key structural resistance. This will remain the favored case as long as target 38.2% retracement of 1.0351 to 1.3787 at 1.2474 holds, in case of another fall.

Daily Pivots: (S1) 0.7924; (P) 0.7945; (R1) 0.7961; More….

USD/CHF is still bounded in tight range and intraday bias remains neutral at this point. Overall, corrective pattern from 0.7828 is still extending. On the upside, break of 0.7990 support turned resistance will bring stronger rebound towards 0.8084. On the downside, below 0.7923 will target 0.7877 support.

In the bigger picture, outlook will stay bearish as long as 0.8332 support turned resistance holds (2023 low). Long term down trend from 1.0342 (2017 high) is still in progress. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382.

Daily Pivots: (S1) 155.23; (P) 155.61; (R1) 155.93; More...

USD/JPY's rally continues today and the break of 156.94 solidify that case that corrective pattern from 157.88 has completed with three waves to 154.38. That is, rally form 139.87 is ready to resume. Intraday bias is back to the upside for 157.88 and above. Firm break of 158.85 key structural resistance will be an important medium term bullish sign. Next target will be 158.85 high. Risk will now stay on the upside as long as 154.38 support holds, in case of retreat.

In the bigger picture, corrective pattern from 161.94 (2024 high) could have completed with three waves at 139.87. Larger up trend from 102.58 (2021 low) could be ready to resume through 161.94 high. Decisive break of 158.85 structural resistance will solidify this bullish case and target 161.94 for confirmation. On the downside, break of 150.90 resistance turned support will dampen this bullish view and extend the corrective range pattern with another falling leg.

New York Fed President John Williams said today that November’s inflation data were likely distorted by "technical factors", cautioning against overinterpreting the downside surprise. He estimated that such distortions may have pushed the CPI reading down by around a tenth of a percentage point.

Williams said it remains difficult to fully assess the size of the impact until December data become available, which should provide a clearer picture of how much the technical effects influenced November’s figures.

On policy, Williams struck a measured tone, saying he does not feel a "sense of urgency" to lower interest rates further. He argued that the cuts already delivered have positioned the Fed well to continue easing inflation pressures while also supporting a labor market that is cooling in an orderly fashion.

Canada’s retail sales edged down by -0.2% mom to CAD 69.4B in October, extending signs of soft consumer demand. Sales declined in four of nine subsectors, led by weakness at food and beverage retailers, pointing to ongoing pressure on discretionary spending.

Underlying momentum was weaker than the headline suggested. Core retail sales, excluding autos and gasoline, fell -0.5% mom. Sales volumes declined -0.6% mom.

Statistics Canada’s advance estimate points to a 1.2% mom rebound in November. While the estimate is based on a lower-than-usual response rate of 60%, it hints at a potential stabilization in consumption as financial conditions ease, though confirmation will depend on the final data.

Full Canada retail sales release here.

The EUR/USD pair declined to around 1.1700 after the European Central Bank (ECB) left key interest rates unchanged, a widely anticipated decision that provided little fresh directional impetus for the single currency.

As expected, the main refinancing rate was held at 2.15%, with the deposit facility rate unchanged at 2.0%. ECB officials reiterated their commitment to a meeting-by-meeting, data-dependent approach.

During the subsequent press conference, President Christine Lagarde stated that policymakers did not discuss either a rate hike or a cut at this juncture. She emphasised that the ECB does not have a pre-set path for interest rates and, given the prevailing high uncertainty, cannot provide forward guidance on future policy moves.

In parallel, the central bank released its latest quarterly economic projections. Growth forecasts were revised upwards to 1.4% for 2025, 1.2% for 2026, and 1.4% for 2027. The inflation outlook for 2026 was also adjusted higher, primarily driven by persistent price pressures in the services sector.

Technical Analysis: EUR/USD

H4 Chart:

On the H4 chart, the pair completed a corrective rebound to 1.1760 and is now forming a downward impulse targeting 1.1706. A break below this level is anticipated, which would set the next local bearish target at 1.1640.

This scenario is technically confirmed by the MACD indicator. Its signal line is positioned above zero but is pointing sharply downwards, reflecting sustained bearish momentum and the potential for a further extension of the downtrend.

H1 Chart:

On the H1 chart, the market has finished a first decline to 1.1705, followed by a correction to 1.1755. A second downward impulse towards 1.1705 is currently developing. A clear break below this support would signal the potential for a third wave of decline, targeting the 1.1645 level as a local objective.

This outlook is supported by the Stochastic oscillator, whose signal line is below the 50 level and trending firmly downwards.

Conclusion

The euro remains range-bound following a largely uneventful ECB meeting, with the central bank's cautious, data-dependent stance offering little support. The technical structure points to further downside risk, with a break below immediate support at 1.1705 likely to trigger a move towards the 1.1640 area.

Key takeaways

BoJ policy supportive for equities: The BoJ’s expected 25bp hike to 0.75% and guidance for a gradual, data-dependent tightening path into 2026 signal policy normalization without destabilising financial conditions, reducing downside risks for Japanese equities.

Stronger JPY no longer a headwind: Domestic-oriented Nikkei 225 stocks are outperforming export-heavy names, indicating that modest JPY strength and improving consumer confidence can coexist with a sustained equity uptrend.

Technical backdrop constructive: The Nikkei 225 is showing signs of a minor bullish reversal after a shallow pullback, with momentum indicators improving and key supports holding, suggesting limited risk of a major corrective decline.

The Bank of Japan (BoJ) has hiked its overnight policy rate by 25 basis points (bps) to 0.75% on Friday, 19 December 2025, as expected, its highest level in 30 years.

In its policy statement, the BoJ said it will continue raising the policy rate as long as economic activity and inflation evolve in line with its projections, signalling a conditional bias toward further tightening. Policymakers noted that the probability of achieving the baseline outlook has increased, underscoring growing confidence that inflation is becoming more entrenched rather than transitory.

The BoJ also reaffirmed its commitment to achieving the 2% inflation target in a sustainable and stable manner, while guarding against overly aggressive tightening that could disrupt financial conditions. Officials highlighted that wages and prices are expected to rise at a moderate and coordinated pace, reinforcing the view that inflation is increasingly underpinned by domestic demand rather than one-off cost shocks.

In essence, the BoJ is signalling its intention to continue a gradual rate-hiking path into 2026, with a clear emphasis on managing volatility in the Japanese Government Bond (JGB) market. Policymakers are wary that a rapid, one-way rise in 10-year and 30-year JGB yields could tighten financial conditions prematurely and undermine Japan’s economic growth prospects.

Markets now await further clarity from BoJ Governor Ueda’s press conference at 0630 GMT on how cautiously the BoJ intends to proceed into 2026 and beyond.

The Nikkei 225 advanced for a second straight session, up 0.8% intraday at the time of writing, rebounding after a four-day pullback that began on Friday, 12 December 2025.

We will now highlight several technical factors that support the BoJ’s current gradual and bit-sized monetary tightening policy, which, in turn, leads to a stronger JPY, and is unlikely to trigger a significant major corrective decline sequence in the Nikkei 225.

Gone are the days when a broad major bullish trend of the Nikkei 225 requires a weak JPY to support it.

Japan’s equities with high domestic exposure are outperforming exporters

Fig. 1: Nikkei 225 Domestic Exposure & Global Exposure indices major trends as of 18 Dec 2025 (Source: MacroMicro)

A stronger JPY is likely to negate the current higher cost-of-living squeeze in Japan, in turn, further boosting consumer confidence, which leads to an increase in domestic spending.

Within the Nikkei 225, stocks with a higher reliance on domestic Japanese sales are outperforming export-heavy names, particularly technology equipment and automobile manufacturers with greater overseas exposure.

Since 9 December 2025, the Nikkei 225 Domestic Exposure 50 Index (domestic sales) has outperformed the Nikkei 225 Global Exposure 50 Index (international sales), where its ratio jumped by 5.4% as of Thursday, 18 December 2025 (see Fig. 1).

Hence, this observation supports the view that a gradual BoJ rate-hiking cycle is unlikely to trigger a major corrective decline in the Nikkei 225.

Preferred trend bias (1-3 days) of Nikkei 225 – Minor bullish reversal in progress

Fig. 2: Japan 225 CFD Index minor trend as of 19 Dec 2025 (Source: TradingView)

Watch the 49,130 short-term pivotal support on the Japan 225 CFD Index (a proxy of the Nikkei 225 futures), and a clearance above near-term resistance of 49,850 (also the 20-day and 50-day moving averages) is likely to reinforce a potential minor bullish reversal towards the next intermediate resistances of 50,490 and 50,985 in the first step (see Fig. 2).

Key elements

• The recent 4-day decline has stalled at the 76.4% Fibonacci retracement of the prior minor bullish impulsive up move sequence from 21 November 2025 low to 12 December 2025 high.
• The hourly RSI momentum indicator has continued to flash bullish momentum conditions since the emergence of a bullish divergence signal on 18 December 2025 at its oversold region.

Alternative trend bias (1 to 3 days)

A break below 49,130 invalidates the bullish bias on the Japan 225 CFD Index to expose the 48,450 key medium-term pivotal support next.

As the XAU/USD chart shows, gold rallied yesterday to near its October all-time high around the 4,380 level, before pulling back (as indicated by the arrow).

The surge in volatility was driven by a combination of factors:

→ Expectations of US rate cuts. According to media reports, data released yesterday showed that inflation slowed to 2.7% in November, below the 3.1% forecast, while core CPI eased to 2.6%, the lowest reading since March 2021. Markets are currently pricing in roughly a 25% chance of a rate cut in January, with a cut by April seen as almost certain.

→ Geopolitical tensions. Traders are closely monitoring developments linked to Venezuela, where the risk of an armed conflict involving the United States has increased. Market participants also reacted to statements from UK and European politicians ahead of the EU summit.

On 5 December, we:

→ noted that the lack of a clear trend had resulted in the formation of a symmetrical triangle, with its midline around $4,205;

→ suggested that this pattern on the XAU/USD chart could act like a “compressed spring”, eventually leading to a volatility breakout.

Such a volatility surge materialised on 11–12 December, when gold broke out of the triangle and posted a high near $4,340.

Since then, a new triangle has begun to form, with a central axis around $4,316, reflecting a developing balance between supply and demand. In this context, it is worth highlighting that:

→ yesterday’s rally and subsequent reversal can be interpreted as a false bullish breakout, signalling strong selling pressure near the record high and suggesting that gold may retreat towards the lower boundary of the emerging triangle;

→ the approaching holiday period is typically associated with thinner market liquidity, which often amplifies price swings. In such conditions, gold could still surprise traders with another push to fresh record highs.

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