The USD/JPY pair commenced Monday with a surge towards 157.30, influenced by market reactions to the US’s actions against Venezuela’s President Nicolás Maduro. However, it subsequently retraced to the 156.5–156.8 range as equities, Bitcoin, and crude oil found stability. The initial surge into the dollar due to “geopolitical shock” was not maintained: S&P 500 futures and the DAX advanced, gold and BTC experienced gains, and risk appetite remained robust. The interplay between these factors positions USD/JPY in a delicate balance: the safe-haven appeal of the dollar driven by current headlines contrasts with a wider risk-on environment that typically limits significant yen depreciation. The December Manufacturing PMI in Japan increased from 48.7 to 50.0, reaching the expansion threshold and marking the end of an 18-month period characterized by significant demand contraction. The survey indicated that the demand for Japanese goods is declining at the slowest rate observed in a year and a half. Additionally, staffing levels are increasing at the fastest rate in four months, while average operating expenses have risen sufficiently to lead to a “sharp” increase in output prices.
Simultaneously, the Bank of Japan has raised its policy rate to 0.75%, marking a significant shift after an extended period near zero. Governor Ueda is clearly addressing the notion of “wages and prices rising together moderately” and emphasizes the necessity of further rate increases should the economy and inflation align with the bank’s projections. For USD/JPY, this indicates that the structural backdrop is now leaning towards a higher BoJ neutral rate and several hikes in the upcoming 6–12 months, rather than a singular adjustment. Increasing wages, elevated import costs due to a depreciating yen, and enhanced corporate pricing power all suggest the need for a more stringent policy and present a medium-term challenge to the cross. The recent ISM Manufacturing PMI in the US recorded a value of 47.9 for December, a decrease from November’s 48.2 and below the consensus estimate of 48.3, indicating a continued contraction in a sector that accounts for approximately 10% of GDP. That occurred amid a context of stronger-than-anticipated data in other areas: Q3 GDP was adjusted upward to an annualized 4.3% compared to the 3.3% expected, jobless claims stayed stable, and housing metrics such as pending home sales surpassed projections. The current pricing of Fed-funds futures indicates approximately a 54.0% likelihood of an initial 25 basis point cut in March, followed by another potential cut around September, rather than an aggressive easing cycle at the beginning of the year. For USD/JPY, this combination is essential: a persistently strong US economy alongside slowly increasing expectations of BoJ normalization narrows the yield gap from both directions. This indicates a medium-term bearish outlook for the pair, despite the short-term technical indicators remaining favorable. Despite the December hike to 0.75%, Japanese 10-year yields remain significantly lower than US Treasuries, indicating that the carry trade continues to favor a long position in USD/JPY.
Market participants are shifting their attention away from the current levels of BoJ rates, concentrating instead on the pace and magnitude of forthcoming adjustments. Officials from the Bank of Japan maintain that additional rate hikes will be contingent on wage growth and forthcoming data, lacking a definitive schedule. Meanwhile, the government’s expansionary fiscal policy is at odds with the central bank’s intention to proceed with a gradual tightening approach. The uncertainty surrounding policy continues to make yen bulls cautious. Concurrently, each surge in geopolitical tension—whether related to Venezuela, tariffs, or wider risk events—redirects global investors’ preferences towards the dollar instead of the yen. The conventional safe-haven function of JPY has been less pronounced: carry and policy divergence continue to prevail, resulting in only shallow dips in USD/JPY thus far. The price movement observed at the beginning of 2026 has exemplified a traditional struggle between opposing forces. USD/JPY surged to approximately 157.30 early Monday before retreating to about 156.55, resulting in a decline for the pair against JPY, despite the dollar showing strength against the majority of other G-10 currencies. Since October, the market has been fluctuating between approximately 155.00 on the lower end and just below 157.90 on the upper end, while the January 2025 high of 158.88 remains unbroken above. Intraday, the pair is currently examining critical hourly moving averages in the range of 156.51–156.55; maintaining position above this confluence supports a positive short-term outlook, whereas a breach below this zone would shift the near-term dynamics towards a more significant test of 156.00 and subsequently 155.00. The current opening range for USD/JPY in 2026 is delineated by the 155.00–157.90 corridor.
On the daily chart, USD/JPY continues to trade above both the 50-day and 200-day EMAs, indicating a favorable position for the bulls in terms of trend analysis. Immediate support is positioned at 156.26, aligning with the 20-day EMA, and is reinforced by a rising trendline originating from 154.39, which approaches 156.56. A daily close beneath that trendline would indicate that the recent advance into the high-156s is faltering and would pave the way for a retest of the December low at 154.35. The 200-day EMA and the significant 150 level emerge as the next probable targets for downward movement. On the topside, resistance is structured around 157.00–157.30, followed by 157.90, with a significant psychological target at 160.00 if the pair can surpass last year’s 158.88 peak. The formation resembles an ascending triangle characterized by a horizontal resistance level in the high-157s and an upward-sloping support line. Typically, this pattern suggests a potential upward breakout; however, it is currently challenged by deteriorating macroeconomic fundamentals. Momentum indicators highlight the extent to which the movement has been extended. On the daily, RSI is positioned at approximately 56, indicating a level above the mid-50s and suggesting consistent, albeit moderate, bullish momentum. On the 4-hour chart, the RSI has been lingering close to overbought levels as the price tested 157.30 and subsequently declined, indicating that long positions may be tactically exposed. Positioning is crucial: the cross has reached the high-157s several times since late 2025, and officials in Tokyo have expressed their discomfort with rapid, unilateral yen depreciation. As spot USD/JPY approaches the upper 157s, with 158.00 in close proximity, a sudden upward movement could provoke not just verbal warnings but also potential intervention—particularly in thin liquidity or if this surge aligns with weaker US data. The existing asymmetry renders pursuing gains beyond 157.50 less appealing, despite the trend remaining technically upward.