USD/JPY edged lower on Friday, trading between 157.35 and 157.96 as risk-off sentiment pressured the pair. A decline in U.S. equity indexes and a steeper Treasury yield curve contributed to the cautious tone, though year-end dollar demand provided some support. The pair’s eight-day streak of higher lows indicates underlying bullish momentum, but its failure to breach the psychological 158 level highlights resistance, especially after warnings from Japan’s Finance Minister Kato about yen weakness. Speculation about a potential BOJ rate hike in January, bolstered by Tokyo CPI data and December meeting minutes, kept the yen supported.

Technical analysis shows USD/JPY is testing key levels. Immediate resistance is at 158.09, with the April 26 high of 158.45 as the next major hurdle. Support lies at 157.09, the Dec. 26 low, followed by additional protection near 156.50. The pair’s close proximity to overbought RSI levels signals a potential pause in the uptrend, with a break below 157.09 likely indicating a deeper correction. Bulls need a strong break above 158.45 to extend the rally.

Near-term focus will be on Monday’s Jibun Bank Manufacturing PMI for December, which could influence yen sentiment amid rising expectations for a BOJ rate hike. Additionally, the BOJ’s decision to reduce monthly JGB purchases by ¥410 billion underscores the central bank’s gradual policy shift. USD/JPY’s trajectory will also hinge on global risk appetite and U.S. yield movements, with year-end liquidity potentially amplifying price swings. For now, the pair remains range-bound, with critical levels defining the near-term outlook.