USD/JPY Forecast: Dollar Tests 159 as Yen Buyers Watch Key 160 Level

The US dollar is approaching a key resistance zone against the Japanese yen as improving economic conditions in Japan strengthen the outlook for its currency. ING strategist Chris Turner believes USD/JPY could break above 159 amid broad dollar strength, but warns that a move beyond 160 may encourage investors to buy the yen at cheaper levels. Stronger manufacturing confidence, semiconductor demand, corporate profitability and rising wages could also give the Bank of Japan (BoJ) greater confidence to gradually tighten monetary policy.

Japan Manufacturing Strength Supports Yen

Japan’s manufacturing outlook improved in November, supported by stronger global demand for semiconductors and data-centre infrastructure. The Reuters Tankan survey showed that the manufacturing sentiment index increased to +27 from +22 in October, reaching its highest level since August 2021.

Electronics manufacturers recorded a particularly strong improvement, with sentiment climbing to +39 from +25. The precision machinery sector also strengthened, reaching +42. These industries are closely connected to global technology investment, where demand for advanced chips and data-processing equipment has supported Japanese exporters.

Confidence among non-manufacturers improved as well. Their sentiment index rose to +35 from +23, its highest reading since June 2018. This suggests that economic optimism is extending beyond Japan’s export-oriented industries.

Wage growth is another important consideration for the BoJ. Japanese real wages increased 2.2% year over year in September, marking a ninth consecutive month of gains, according to government data reported by Reuters.

Sustained wage increases can support household spending and domestic demand, potentially making inflation more durable. That would strengthen the central bank’s argument for gradually moving away from its accommodative monetary policy.

ING Sees USD/JPY Testing 159

ING’s Chris Turner believes the combination of stronger manufacturing activity, corporate earnings and wage growth could reinforce the BoJ’s assessment that inflation is stabilizing around its 2% target.

A sustained improvement in these conditions could give policymakers more confidence to raise interest rates. Higher Japanese borrowing costs would generally make yen-denominated assets more attractive, potentially supporting the currency.

However, the US dollar remains a competing force. Strong demand for the greenback and differences between US and Japanese interest rates could keep USD/JPY elevated. Turner therefore sees scope for the pair to move through resistance at 159.

The 160 threshold is particularly important. ING expects investors to increasingly consider buying the yen if the exchange rate rises above that level, viewing its weakness as an opportunity to enter the market at a more favorable price.

USD/JPY Outlook: Key Levels to Watch

The currency pair faces competing economic forces, making the 159–160 region an important area for traders.

Key factors shaping the outlook include:

• 159: Resistance that USD/JPY could overcome amid dollar strength.
• 160: Psychological threshold where yen buying could increase.
• Manufacturing sentiment: November reading improved to +27.
• Real wages: September growth reached 2.2% annually.

Conclusion

USD/JPY could extend its advance toward 160 if broad dollar strength continues to outweigh improving Japanese fundamentals. However, stronger manufacturing activity and sustained wage growth may reinforce expectations of further BoJ policy tightening, supporting the yen. ING sees a possible break above 159 but cautions that the 160 area could attract renewed yen demand. The pair’s next move will depend on US interest-rate expectations, Japanese economic data and signals from the central bank.