On Tuesday, the yen was losing ground amid a broadly positive tone in stock markets, which typically reduces demand for traditional safe-haven assets. However, further yen weakness seems unlikely, particularly in light of comments from Bank of Japan Governor Kazuo Ueda.

Ueda offered the clearest signal yet of possible future policy normalization, stating that the likelihood of meeting the central bank's economic and inflation forecasts has increased. Moreover, inflation in Japan has remained above the 2% target for more than 3 years, underscoring the need to tighten monetary policy.

Traders responded quickly, pricing in about an 80% probability of an interest rate hike at the BoJ's December 18-19 meeting. This probability is significantly higher than last week's estimate of 60%.

As a result, the yield on two-year Japanese government bonds, which are sensitive to interest rates, rose to 1% for the first time since June 2008, while the yield on 20-year bonds reached levels not seen since November 2020. The yield on 30-year bonds hit record highs, and yields on 10-year bonds are at 17-year highs, indicating potential buying interest in the yen on dips.

On Sunday, Japan's Finance Minister Satsuki Katayama noted that recent fluctuations in the currency market and the yen's sharp depreciation are not driven by fundamental factors. According to him, the authorities hold the view that such situations need to be prevented, which raises speculation about possible government intervention to limit further currency depreciation.

The U.S. dollar reached two-week lows after the ISM Manufacturing PMI dropped to 48.2 in November from 48.7 the previous month.

This figure was below market expectations, adding pressure on the dollar. Additionally, dovish signals from Federal Reserve officials are fueling speculation about an imminent rate cut, which would occur this month. The CME Group's FedWatch tool indicates nearly an 88% probability of a quarter-point rate reduction at the meeting on December 9-10, which significantly contrasts with the hawkish statements from the BoJ, thereby limiting the rise of the USD/JPY pair.

Before the Fed's next decision regarding interest rates, investors should pay attention to the publication of the Personal Consumption Expenditures (PCE) price index—a preferred inflation gauge for the central bank—to better understand potential future monetary policy directions. However, uncertainty lingers due to the lack of an official employment report following the recent suspension of federal government operations.

From a technical perspective, Tuesday's rally faced strong resistance at the round level of 156.00. A sustained move above this level could trigger a short-covering rally, lifting the USD/JPY pair to intermediate resistance levels of 156.60-156.70 on its way to the round level of 157.00. This momentum may continue above the round level of 157.00, potentially reaching levels of 157.20 and 157.50 before spot prices attempt to retest the round level of 158.00.

Conversely, a decisive break below 155.40 would provide new impetus to bears, opening the way for a continuation of the two-week downward trend towards the psychological level of 155.00.