The USD/JPY is currently positioned near ¥159.00, revisiting levels observed in July 2024 following a series of six consecutive daily increases and the most significant single-day movement in several months. The pair has ascended from the mid-156s through the 157.70–157.90 range and is currently approaching the 158.88–159.00 resistance zone, which signifies the current high for 2025 and the previous peak from July 2024. On the day, the US Dollar has increased approximately 0.5% against the Yen, marking the most significant gain compared to any major currency in the heat map. This highlights that the JPY is the weakest currency in the G10, while the USD remains broadly strong. The recent US CPI release maintains structural support for the Dollar in the USD/JPY pair, despite the data not delivering an upside surprise. In December, the headline CPI rose by 0.3% on a month-to-month basis and 2.7% on a year-over-year basis, aligning perfectly with forecasts and maintaining the same rate as observed in November. Core CPI, which strips out food and energy, rose 0.2% m/m and 2.6% y/y, undershooting the 0.3% / 2.7% consensus on the month while staying flat on the year. Inflation continues to be significantly above the Fed’s 2% target; however, there are no indications of a resurgence. When considering the previous jobs report – with payrolls increasing by approximately 50k, unemployment decreasing to 4.4%, and average earnings rising to around 3.8% year-over-year – the overall impression is of an economy that is experiencing a gradual slowdown, while wage pressures remain notably high.
The rate markets are adjusting by delaying the anticipated timing of the initial cut instead of factoring in significant easing: the implied probability for the first Fed rate cut is centered around June, with approximately a 73% likelihood, and merely about two cuts are accounted for throughout the entire year. That profile is Dollar-positive versus low-yielders like the Yen. Fed speakers lean cautious as well. St. Louis Fed President Musalem emphasizes that there is “little reason” to implement further easing in the near term, asserting that the current policy is well positioned to balance risks. The ongoing political discourse surrounding the Federal Reserve, highlighted by Justice Department subpoenas involving Chair Powell and Trump’s public comments following the CPI report—where he referred to the figures as “great” and criticized Powell as “Too Late”—introduces a level of uncertainty regarding the independence of the central bank. However, the market response has been relatively subdued up to this point. The crucial aspect for USD/JPY is that short-term US yields have remained stable, and the Dollar maintains a distinct rate advantage. On the Yen side, domestic factors continue to work against JPY even as global risk stress would normally help it. The pair is currently hovering near a one-year peak, having consistently attracted buying interest on dips. USD/JPY has shown a rapid recovery each time it momentarily fell below the 155.00 level in December and early January. Political uncertainty is on the rise: reports indicate that Prime Minister Sanae Takaichi could dissolve the lower house and initiate a snap election as soon as February. A surprising vote increases the likelihood of more relaxed fiscal policy, increased campaign expenditures, and renewed concerns regarding Japan’s already high public debt ratios. Those expectations undermine the Yen. Simultaneously, relations with China face challenges as Beijing has imposed restrictions on the export of specific dual-use goods to Japan. This development introduces additional local pressures on JPY, stemming from supply chain issues and growth uncertainties. Crucially, the timing and scale of the next Bank of Japan move remain highly unclear. The markets continue to navigate without a clear strategy for moving away from extremely accommodative policies. Despite last year’s adjustments to yield-curve control, short-term interest rates in Japan are still significantly negative when adjusted for inflation. That gap versus US yields keeps the carry trade in USD/JPY attractive: investors are paid to be long Dollars and short Yen, and the mix of political noise, BoJ opacity, and modest domestic inflation fails to generate a strong safe-haven bid for JPY.
The wider risk environment supports the Dollar-Yen trend instead of opposing it. US equities exhibit resilience, with the S&P 500 advancing approximately 0.2% to reach a new intraday high, while the Nasdaq 100 rises by about 0.5%. This uptick is supported by robust performance in the technology sector and a notable 2.7% increase in Walmart, which is set to join the Nasdaq 100 on January 20. Financials lagged following Trump’s proposal of a 10% cap on credit-card interest for one year, resulting in a decline of approximately 1.2% in the bank and consumer finance sector, yet overall index sentiment remains optimistic. In Asia, the weaker Yen is resulting in a notable increase in equity performance: Japan’s Nikkei 225 has risen over 3% to achieve a new all-time high, while South Korea and Taiwan are also reaching record levels, and Chinese blue chips are hitting a four-year high. This exemplifies typical carry-trade behavior: investors finance in low-yielding Yen and allocate into higher-beta assets, which bolsters USD/JPY during rallies and promotes dip buying whenever the pair retreats by a figure or two. From a technical perspective, USD/JPY is currently in a clearly established uptrend; however, it is approaching a significant resistance area where the likelihood of a pause or potential shake-out increases. On the daily chart, the price has recorded six consecutive higher closes for the first time since October, rising over 3% from the December lows and reaching the highest levels since mid-2024. The first key resistance band comes in around ¥158.88–¥159.00, which includes the current 2025 high and the July 2024 peak. The next significant level to watch is the April 2024 high at approximately ¥160.22, which corresponds with the upper parallel of a rising internal channel as we approach the end of the week. An additional upward movement would target the area around ¥161.00 and the high-day close for 2024 near ¥161.69 as significant objectives. Momentum validates the robustness yet also signals potential late-stage conditions. The daily RSI approaches 70, and intraday oscillators are currently in overbought territory, indicating a strong rally that is starting to reach its limits. Nonetheless, the overall framework remains positive: the pattern of higher highs and higher lows from the 149.00–150.00 area (close to the 200-day moving average) continues to hold, and each effort to breach trend support since December has been turned away.
On the downside, multiple closely aligned support zones indicate the areas where bulls are expected to uphold the trend. Immediate intraday support is concentrated in the 157.70–157.90 range, integrating the 2025 high-day close alongside the November peak. This band has transitioned from resistance to initial support and is the primary level to monitor for renewed demand should USD/JPY retreat from the 159.00 mark. The 2025 yearly open near ¥157.19 serves as a pivotal threshold referenced by various technical analyses; provided that daily closes remain above this mark, the rally can be considered a continuing impulse rather than a finished progression. The bullish invalidation for the current leg has been adjusted to the 2026 yearly open, which is approximately ¥156.67. A sustained break and daily close below that point would indicate that a more significant high has been established, potentially leading to a decline back toward the December low range near ¥155.00–¥155.35. In the medium term, the 20-day and 50-day simple moving averages are trending upwards, currently positioned around ¥156.40 and ¥155.75 respectively. This reinforces the notion that the 156–156.50 range represents a solid “buy-the-dip” opportunity, provided the overarching macroeconomic narrative remains stable. The primary macroeconomic risks that could disrupt the USD/JPY trend are real, though they have not yet taken precedence. On the US side, the emerging narrative surrounding Fed independence – DOJ subpoenas related to Powell’s testimony and Trump’s pointed public criticism – could pose a real challenge for the Dollar if it fosters skepticism about policy credibility; for the moment, traders perceive it as political theater, with rate expectations and CPI data continuing to influence pricing. Anticipated US data, such as retail sales and PPI, may introduce volatility: a mix of disappointing demand figures and subdued inflation could prompt earlier rate cuts and limit US yields, potentially tempering the upward movement in USD/JPY, even if it does not completely reverse the trend. The potential snap election in February in Japan presents a notable headline risk. A campaign centered on increased fiscal stimulus may lead to a short-term depreciation of the JPY.
However, an unexpected development that prompts the BoJ to accelerate normalization or induces a risk-off sentiment in domestic assets would result in the contrary effect. The pivotal factor continues to be the Bank of Japan’s stance on Yen depreciation near the ¥160 mark. The recent episodes of suspected intervention took place near this zone, and the current IG and FOREX.com maps both indicate ¥160.00 as the level where policymakers might intervene once more. The potential for a test of ¥160.00–¥161.00 remains, yet pursuing new long positions above 160 carries increased risk. Market positioning and short-term price action indicate that USD/JPY is currently operating within a “buy-the-dip, fade the spike” framework. Bears gained confidence late last week as the pair momentarily approached the ¥155 mark due to warmer-weather risk sentiment and uncertainties surrounding the Fed. However, they had to cover their positions when support held, resulting in a swift movement past 157.75 and then 158.00. The recent short-covering is being bolstered by new long positions as US data supports a soft-landing outlook instead of a recession. Provided that the price remains above approximately ¥157.20 on a closing basis, any pullbacks toward the 157.70–157.90 range and even down to 156.50–156.70 are expected to draw in both real-money and leveraged buyers. Conversely, levels exceeding ¥159.00 and approaching ¥160.00 are situated in a range where a significant amount of favorable information is already incorporated: robust US data, postponed Fed cuts, a depreciated Yen, buoyant equities, and a non-interventionist BoJ. This indicates a strategic point to reduce exposure on aggressive long positions, tighten stop-loss orders, and monitor for a definitive breakout above 160.22 towards 161.00 or a potential corrective pullback.