The USD/JPY has shifted from a volatility peak around 155.65 on 20 February to a trading level nearer to 154.35 on 23 February, with intraday lows approaching the 154.00 mark and experiencing losses exceeding 0.45% for the day. The pair initially moved upward following earlier US data but then reversed course as the tariff narrative shifted from clarity to confusion. The significance of that reversal lies in the fact that the area between 154.00 and 155.65 now represents a short-term distribution band instead of a straightforward continuation range. Every movement toward 155.00–155.65 encounters significant resistance, while the market is assessing the actual demand positioned just below 154.00 and extending down to 153.60. The catalyst for the most recent decline in USD/JPY is the new tariff shock. The US Supreme Court annulled the previous emergency tariff framework, and shortly thereafter, the White House proposed a comprehensive 15% global levy. The new combination substitutes a familiar, contested tariff framework with one that is significantly more uncertain. Worries regarding retaliation, supply-chain interruptions, and a slowdown in global trade have diminished the appetite for risk worldwide, leading to a shift in capital towards traditional safe havens: long JPY, short USD. The dollar has decreased approximately 0.4% against the yen and about 0.5% compared to the Swiss franc today, while European currencies have appreciated by around 0.3–0.4%. This aligns with a trend of shifting away from US assets, as tariff uncertainties impact them more significantly compared to other G10 currencies, while simultaneously benefiting the yen, despite Japan’s macroeconomic indicators not being ideal.
From the perspective of the US, the broader economic context surrounding USD/JPY does not present a straightforward dovish narrative. The Core PCE for December exceeded expectations, and the most recent CPI data for January indicates that inflation remains close to 2.9% year-on-year, significantly above the 2% target. Simultaneously, the annualised growth rate of US GDP decelerated significantly to 1.4% in Q4, indicating a clear cooling of momentum. Markets entered 2025 with expectations of two cuts; however, only one 25-basis-point adjustment occurred late in the year. As of 23 February 2026, futures continue to indicate approximately two cuts for 2026, with the likelihood of a June move decreasing from around 68.6% on 13 February to approximately 51.1% at present. The repricing has bolstered US yields; however, it has not been sufficient to counterbalance the tariff shock and the increasing perception that the easing cycle could be slow, inconsistent, and heavily reliant on data. The outcome is a dollar that is no longer experiencing a strong upward trend, making USD/JPY susceptible when risk sentiment declines. The yen aspect of USD/JPY has shifted from the previous one-sided funding narrative observed a year prior. Headline inflation in Japan has significantly decreased: the annual rate fell from 2.1% in December to 1.5% in January, while core CPI declined from 2.4% to precisely 2.0%, aligning with the Bank of Japan’s target. The observed softness in the headline, along with the lackluster Q4 GDP, typically suggests that immediate policy tightening may not be warranted. Nonetheless, the core-core measure, excluding fresh food and energy, remains at approximately 2.6%, down from 2.9% earlier, still well above the target. The services sector of the economy remains stable. The Japan services PMI increased slightly from 53.7 in January to approximately 53.8 in February, as companies noted higher input costs and a more pronounced rise in selling prices. Services represent approximately 70% of Japan’s output, and this is exactly where the Bank of Japan has been seeking validation that the fundamental inflation is sustainable. The combination of a soft headline CPI alongside persistent core-core inflation and robust services keeps the possibility of an April or mid-year rate adjustment very much in play, reinforcing a medium-term case for the yen’s strengthening as policy moves towards normalization.
The underlying narrative for USD/JPY currently hinges on the pace at which the Fed transitions away from restrictive conditions compared to the speed at which the BoJ shifts upwards from negative or near-zero rates. The yield on the US 10-year Treasury fell below 3.8% during the 2025 risk-off period; it has since bounced back to approximately 4.2% as of this week. The current level continues to provide carry in relation to Japanese government bonds, yet the trajectory is more significant than the fixed spread. The ongoing discussion regarding the Bank of Japan’s anticipated “neutral” rate has transitioned to a range of 1.0–1.25% on the dovish end, compared to a 1.5–2.5% range on the hawkish side. Any movement toward the upper band suggests several increases in the coming 18–24 months, gradually diminishing the yield advantage that has sustained USD/JPY around the 150–160 range. Simultaneously, several cuts from the Fed, even if implemented later than initially anticipated, would narrow the gap from the US perspective. That combination is precisely what leads many desks to view rallies above 155.00 more as chances for distribution rather than as a new breakout. The tariff shock and rate debate are unfolding within a wider context of “risk recalibration.” Equity futures in the US are showing a decline, with S&P 500 contracts down nearly 0.8% and Nasdaq 100 futures decreasing by approximately 1.0%, reversing a significant portion of the previous session’s recovery. In Europe, the FTSE 100 has retreated from its peak near 10,745, moving toward the 10,640–10,580 range as news of a 15% global tariff impacts export-driven industries. Concurrently, gold has increased approximately 1.1%, trading above the range of $5,150–$5,200 per ounce, while silver has surged over 3%, currently positioned in the mid-$80s. The movements in metals align with the stronger yen: the market is shifting towards defensive assets while reducing exposure to tariff-sensitive companies. In this context, the decline of USD/JPY from 155.65 to 154.00 aligns with a traditional risk-off strategy rather than being driven by a unique situation in Japan.
From a purely price-action perspective, USD/JPY has established a near-term peak just below 155.70, with consistent difficulties in maintaining trade above that level. The decline to 154.00 during early Asian trading and the following rebound to approximately 154.35 establish 154.00 as the primary intraday pivot point. A decisive move and a close beneath that level creates potential for a decline toward the mid-November low around 153.62, followed by a target near the late-January to early-February support zone between 152.27 and 152.10. The supports are positioned near the ascending 200-day exponential moving average, which serves as the boundary distinguishing a mere pullback in a robust uptrend from a true trend reversal. On the topside, any recovery back through 154.50 and 155.00 would still encounter significant resistance near the February high around 155.65 and the early-January low near 156.12. Until there is a clear daily close above the 156.00–156.50 range, short-term momentum continues to lean towards the downside. The overall framework on the daily chart maintains USD/JPY beneath its 50-day EMA while remaining above the 200-day EMA. The current setup indicates a negative outlook in the short term, positioned above an upward trend that remains intact for now. The trajectory from this point is clear regarding the tiers involved. A consistent decline beneath approximately 153.00 would activate the 200-day EMA and represent the initial significant evaluation of the trend. A breakthrough of that moving average would redirect attention to 150.00, a significant psychological level where previous discussions of Japanese intervention have heightened. If 150.00 does not hold on a closing basis, support levels near 145.00 and subsequently the 140.00 range become potential medium-term targets over the next six to twelve months. The 140.00 level corresponds with situations in which the BoJ has implemented several rate increases, the Fed has made multiple cuts, and carry trades financed in yen have been substantially reduced. On the positive side, any advance toward 159.00–160.00 would probably encounter not just technical resistance but also an increasing risk of intervention from Tokyo, which limits how far the pair can extend even if US data exceeds expectations.