USD/JPY Forecast 16/12: Carry Trade Dynamics Persist (Video)
By Christopher Lewis
Christopher Lewis brings over two decades of market experience to his Forex analyses. A longtime contributor to Daily Forex and a familiar voice across FX Empire, Investing.com, and his own site, The Trader Guy, Chris leans on technical analysis to identify trading opportunities. He also navi gators the realms of equity indices and commodities alongside Forex, often favoring longer-term positions.
Read more at Daily Forex author bio
- USD/JPY pauses after an early rally, yet steady yield differentials and key support levels help the dollar.
- Carry trade forces and Japan’s structural policy constraints continue to position pullbacks as potential buying opportunities.
The dollar initially pushed higher against the yen but then pulled back, showing signs of hesitation in the upside. The 155.00 area, however, appears to offer some support, suggesting a potential small buying setup. With questions still hovering over the Federal Reserve’s next steps, the core takeaway remains straightforward: the interest-rate gap is likely to stay in the US dollar’s favor.
Carry Trade Momentum Keeps the Dollar in the Driver’s Seat
Over the longer horizon, this dynamic tends to push USD/JPY higher. Even if prices dip, the 50-day moving average around 154.00 yen and the next support around 152.00 yen provide a framework for a probable rebound. A modest pullback feels plausible, especially as we anticipate the Bank of Japan’s policy developments later this week. In this context, expect some choppy, sideways movement—a natural companion to carry-trade cycles.
For months I’ve been positioned long on this pair, which demonstrates the practical power of carry trades: daily gains can accumulate even in uncertain markets. The expectation is that carry-trade activity will regain strength should the US economy maintain a relatively hawkish stance. recent U.S. data broadly supports the view that 2026 could unfold as a solid year for the US economy, even as Japan faces structural limitations that constrain aggressive tightening.
In this setup, price dips may present further opportunities for patient investors, potentially favoring longer horizons. Short-to-medium-term traders are also joining the trend as volatility remains contained within a constructive framework for USD/JPY.
If you’re interested in our USD/JPY forex analysis and predictions, you can explore the full reports at Daily Forex.
Author note: Christopher Lewis has extensive experience in Forex trading, with more than 20 years in financial markets. A familiar Daily Forex contributor since the site’s early days, Chris writes across several major outlets and emphasizes technical analysis. He tends to maintain longer-term positions, sometimes lasting days to weeks, and enjoys trading equity indices and commodities alongside FX.
Discussion prompts: In today’s environment, do you think the carry trade dynamic is sustainable given ongoing policy shifts in the US and Japan? How would a sustained shift in Bank of Japan policy alter USD/JPY’s trajectory in 2026? Share your views in the comments.
