The USD/JPY pair is currently positioned between 156.5 and 156.7, showing a recovery from Monday’s decline as the US Dollar strengthens and US yields experience a slight increase. The US Dollar Index has returned to the range of 98.4–98.5 following a dip influenced by risk-on flows. This slight recovery is sufficient to maintain the pair within its current up-channel, rather than initiating a new trend leg. The price is steadily increasing instead of surging, indicating that buyers are active yet exercising caution at these heightened levels. The immediate support for USD/JPY is derived from the yield differential and the prevailing market sentiment that suggests a mildly easier Fed, rather than an aggressively dovish stance. The pair is currently trading close to levels that have historically prompted verbal intervention threats from Tokyo, which understandably limits the eagerness to increase long positions around the mid-150s. The outcome presents a scenario where two forces are in conflict: US rates and risk sentiment provide support, while the potential for BoJ normalization and intervention concerns impose a limit above. The current US data does not support a narrative of a strong dollar; rather, it indicates a managed deceleration in economic activity. The Services PMI has decreased from 54.1 to 52.5, while the composite gauge has fallen from 54.2 to 52.7, indicating a slowdown in activity that remains in an expansionary phase. The current environment clarifies why markets are still anticipating approximately two Fed cuts for 2026, in addition to the 75 basis points already implemented last year, while viewing the January 27–28 meeting as likely to result in no change.
For USD/JPY, that configuration is significant in two aspects. Initially, yields on shorter-dated US securities may decline in response to any negative surprises in labor or services data, which could reduce the rate advantage that has kept the pair above 150 for an extended period. The recent rebound of the dollar appears to be influenced more by position adjustments and geopolitical factors than by any fundamental change in expectations regarding the Federal Reserve. The forthcoming Nonfarm Payrolls report, in conjunction with ADP, ISM services, and JOLTS, serves as the primary catalyst. A jobs gain that falls short of expectations, coupled with subdued wage growth, would strengthen the narrative of a cooling labor market that Federal Reserve officials are already highlighting. In that scenario, the Dollar Index declining from 98 and US yields softening would likely pull USD/JPY back through 156 and towards the lower end of the recent range. On the other hand, a strong labour report could maintain elevated yields in the short term. However, with the market already anticipating only slight easing, the potential upward movement for USD/JPY from a single report is constrained when weighed against the downside risk if the data falls short of expectations.
On the Japanese side, the narrative has shifted from ultra-dovish to a more cautious hawkish stance. Governor Kazuo Ueda has reiterated that the Bank of Japan stands ready to persist with rate increases as long as economic conditions and inflation develop according to forecasts, emphasizing that policy modifications aim to ensure “sustained growth and stable inflation.” Following an extended period of negative rates and yield-curve control, we are witnessing a significant shift in the economic landscape. This is significant as ongoing yen weakness in the range of 155–157 bolsters the argument for further tightening measures. A depreciating JPY contributes to inflationary pressures, and it is evident that policymakers are intent on preventing significant currency declines from overshadowing the inflation landscape. Recent verbal warnings from Japanese officials emphasize their unease with sudden fluctuations in USD/JPY, maintaining the possibility of direct intervention whenever the pair rises within the channel. In the medium term, the trajectory is clear: a Federal Reserve that has already implemented a 75 basis point cut and is anticipated to continue easing, contrasted with a Bank of Japan that is indicating a shift towards more rate hikes. The divergence in policy suggests that a significant shift above current levels is unlikely, supporting a gradual revaluation of the yen in the upcoming quarters. Any spike toward the high-150s would increasingly appear as a chance for Japan’s Ministry of Finance to intervene, rather than a foundation for a new structural uptrend.
Geopolitical factors are creating fluctuations in USD/JPY, yet they do not alter the fundamental narrative. US military operations and regime change in Venezuela initially sparked a risk-off wave; however, markets swiftly transitioned to a more positive outlook as investors processed the developments and shifted towards risk assets. The adjustment facilitated the dollar’s rebound from previous lows and bolstered the trajectory towards 156.50. The dynamics of safe-haven assets are currently divided. Historically, the yen has served as the primary beneficiary during times of geopolitical stress. Today, the US dollar attracts defensive flows, especially when global investors seek both liquidity and safety. That is why USD/JPY can rise even when headlines indicate increased geopolitical risk: both components of the pair are viewed as safe havens, yet in reality, the dollar frequently prevails in that scenario when US yields are appealing. Should the situation in Venezuela deteriorate — with increased strikes, risks of supply disruptions in energy markets, or wider regional instability — the immediate response would probably lean towards the dollar once more, likely maintaining support for USD/JPY even as other risk assets face volatility. However, if the conflict stabilizes and risk appetite remains strong, the supportive safe-haven demand for the dollar would diminish, making the pair more susceptible to the rate and policy divergences that suggest yen outperformance over time.
Currently, USD/JPY is positioned within the upper segment of a rising channel that has characterized price movements for several weeks. The pair has consistently faced challenges in maintaining levels significantly above the mid-156s and approaching 157.00, which now serves as a practical resistance zone where buyers show reluctance and profit-taking occurs. The pattern identified in previous studies — a market where “bears await an ascending channel breakdown” — remains relevant, as each rebound towards the upper channel continues to draw in sellers instead of facilitating a clear breakout. On the downside, initial support is positioned within the 155.50–155.00 range, where previous declines have halted and where short-term moving averages are converging. A closing breach of that zone would represent the initial indication that the bullish structure is beginning to show signs of weakness. Below, 153.00 emerges as the next significant level, corresponding with prior reaction lows and the region emphasized in recent macro analysis as the current fair zone following the post-jobs repricing. A decisive break through 153.00 would signify a significant change in market sentiment, creating potential movement toward the psychologically crucial 150.00 level. Resistance is clearly visible on the topside around 157.00. Any movement beyond that level toward 158.00 is expected to encounter significant selling pressure, stemming from leveraged longs cashing in on profits and traders cautious of potential intervention news. Analyzing the situation from a technical standpoint, the risk-reward profile in the range of 156.5–157.0 leans more towards potential downside movement rather than a lasting upward breakout, particularly in light of the current macroeconomic context surrounding BoJ normalization.