The USD/JPY pair has seen a significant reversal from a sharp decline exceeding 4% from the 159.13 level, descending to around 152.06, before rebounding approximately 3.5% off the support zone of 151.91–152.06, moving back above 157.00. The pair has experienced an upward movement in five of the last six sessions, with the price once more approaching a resistance band that has previously limited rallies through late-2025. The rebound commenced just prior to the long-term support established by the swing highs of 2022 and 2023, in conjunction with the 38.2% retracement of the April advance, which is situated around 151.91/151.98. Provided that USD/JPY remains above that base, the market perceives the January decline as a correction within a continuing uptrend, rather than a finalized peak. A weekly close below 151.91/151.98 would be necessary to suggest that a more significant downward phase has commenced. The overarching narrative influencing this shift is rooted in the political landscape and fiscal strategies in Japan. The nation approaches a sudden election on 8 February, with Prime Minister Sanae Takaichi advocating for an expansionary agenda. Polls indicate a significant win for the Liberal Democratic Party, potentially allowing Takaichi more flexibility to implement a more relaxed fiscal policy. One of the key commitments is the suspension of the 8% consumption tax on food for a duration of two years, amidst Japan’s existing substantial public debt burden. Markets interpreted this as an indication of increased spending financed by debt in the future. The yen has been under pressure, contributing to USD/JPY rising above 157.00, reaching a two-week peak. Takaichi has emphasized the advantages of a weaker currency in her campaign statements; despite moderating her language, it is evident that maintaining yen strength is not a key political focus. The interplay of fiscal expansion and acceptance of depreciation presents a clear downside for JPY in the short term.
On the monetary front, Tokyo headline CPI has cooled to its weakest level since early 2022, indicating a decline in demand-driven inflation and alleviating the pressure on the Bank of Japan to expedite tightening measures. Simultaneously, the BoJ’s Summary of Opinions indicates that board members continue to express concerns regarding price pressures driven by a weak yen and increasing wages, while a private survey reveals that Japan’s services sector is expanding at its quickest rate in nearly a year. The current mix suggests that a BoJ hike remains a possibility in the first half of 2026, albeit on a very gradual trajectory. In the United States, markets continue to reflect expectations of approximately two rate cuts from the Federal Reserve this year, which theoretically should constrain the upside potential in USD/JPY; however, the dynamics surrounding the dollar remain robust. Comments from Fed Governor Lisa Cook indicating that risks remain skewed toward higher inflation have contributed to the dollar index reaching new highs since late January. The yield differential continues to favor the dollar, despite the recent setback in USD/JPY. This situation supports the strategy of buying dips rather than pursuing sustained yen strength, unless there is a significant shift in guidance from either central bank. The weekly framework for USD/JPY has become clearly established. The January selloff halted just pips before the 151.91/151.98 cluster, coinciding with the swing highs from 2022 and 2023, as well as the 38.2% retracement of the most recent April advance. The specified area represents a critical threshold for maintaining a medium-term bullish perspective. The rebound is propelling price towards the resistance band of 157.70–158.08, established by the high-week close of 2025, along with the high closes from December and January. Just above sits 158.88, a level that bulls were unable to secure on a closing basis multiple times throughout 2025 despite their repeated efforts. A definitive weekly close above 158.88 would validate the continuation of the 2025 uptrend and reestablish the trajectory toward the 2024 high-week close and the 2024 swing high at 160.74–161.95. The range of 160.74–161.95 represents the upper boundary of the wider spectrum, where speculation regarding intervention and official commentary has notably increased in the past.
The intraday and daily charts indicate that the final phase of the movement has been characterized by a clear break and subsequent retest near 156.50. The level in question integrates the 100-period simple moving average on the four-hour chart alongside the 61.8% Fibonacci retracement derived from the downswing between 159.13 and 152.06. A decisive move above 156.50 indicates that the rebound is more substantial than just a one-day squeeze. From that same Fibonacci set, 157.64 represents the 78.6% retracement and aligns with the lower edge of the 157.70–158.08 weekly resistance band. A rejection in the range of 157.64–158.08 could pave the way for a corrective pullback, with the initial significant downside target positioned around 155.60, representing the 50% retracement of the 159.13–152.06 move. Should the price fall below 155.60, focus will swiftly turn to 154.79 and 154.10, which correspond to the 61.8% retracement of the latest upward movement. A daily close below 154.10 would undermine the bullish outlook and shift attention back toward the 151.91/151.98 support level. Momentum indicators indicate a bullish inclination, yet caution against pursuing positions at resistance levels. On the four-hour chart, the relative strength index is positioned just beneath the overbought level near 70, while the MACD remains positive, accompanied by a diminishing histogram. This typically suggests that buyers maintain dominance in the market, although the momentum for upward movement is diminishing as the price approaches a significant resistance level. Should USD/JPY decisively breach 157.64 and maintain levels above 158.00, accompanied by the RSI consistently exceeding 70 and the MACD histogram showing renewed expansion, this would signal a new momentum phase aimed at 158.88 and subsequently 159.45, which aligns with the January peak highlighted by additional technical analysis. If RSI rolls over from just below 70 and MACD flattens or crosses down while price stalls under 157.70–158.08, the likelihood of consolidation or a deeper pullback toward 155.60 and potentially 154.10 increases. In the daily perspective, the 55-day moving average alongside the early-January low creates a support zone between 156.29 and 156.12. The short-term bullish sentiment remains intact as long as USD/JPY maintains a position above approximately 155.56, which is the late-December low.
In the performance tables from the last week, the Japanese yen has depreciated approximately 2.36% against the dollar, about 1.17% against the euro, and roughly 1.07% against the pound. Additionally, it has seen a decline of around 1.45% relative to the Canadian dollar, 1.74% against the Australian dollar, and 1.46% compared to the New Zealand dollar. The yen has exhibited significant weakness across the majority of G10 currency pairs. The significance lies in the fact that the ongoing rally in USD/JPY is not merely a standalone occurrence; it is a component of a wider, policy-influenced depreciation of the yen linked to fiscal apprehensions, electoral uncertainties, and gradual normalization by the Bank of Japan. In this context, the advance beyond 157.00 should be interpreted as a true portfolio reallocation away from JPY, rather than merely a temporary positioning squeeze that can be countered decisively at the first indication of strain.
The insights from institutions regarding the pair are largely consistent with the technical analysis. One major house observes that USD/JPY has already experienced a significant rally from late-January lows near 152, moving back above 157, and that the snap election outcome is largely priced in. A more robust mandate for the ruling coalition would bolster expectations for ongoing fiscal expansion, which tends to be negative for the yen unless the Bank of Japan reacts with quicker rate increases. Simultaneously, officials are acutely aware of swift movements around the 159–160 range, where discussions of intervention have intensified in the past. The key insight is that the range between 160.00 and approximately 161.95 marks a significant increase in the likelihood of encountering official resistance, whether direct or indirect, even if such resistance initially manifests as verbal warnings instead of concrete measures. A disappointing election outcome for the ruling bloc may lead to a brief rally in the JPY; however, the overall sentiment in these evaluations continues to indicate a trend toward a stronger USD/JPY in the medium term, accompanied by heightened volatility as it approaches the 160 level.