USD/JPY Price Forecast: Bulls turn cautious as intervention talks counter fiscal concerns

The USD/JPY pair witnessed an intraday turnaround on Monday and retreated nearly 150 pips from the 157.65 region, or over a two-week high, touched in the aftermath of Japanese Prime Minister Sanae Takaichi's landslide victory. In fact, Takaichi's Liberal Democratic Party (LDP) sailed past the 233 seats needed for a majority in the lower house, paving the way for promised tax cuts and a stronger defence system. This, in turn, shifted focus squarely to Japan's already strained public finances and undermined the Japanese Yen (JPY).

Adding to this, the labour ministry reported that Japan’s nominal wages rose 2.4% YoY in December 2025, up from a revised 1.7% gain in the previous month. The reading, however, fell short of market expectations, while inflation-adjusted real wages fell 0.1% in December from a year ago, marking the 12th straight month of contraction. The data temper bets for an immediate rate hike by the Bank of Japan (BoJ). This, along with a positive risk tone, further dented the JPY's safe-haven status and provided a modest lift to the USD/JPY pair.

The market reaction, however, faded as Japanese officials stepped up JPY intervention warnings. Japan's Finance Minister Satsuki Katayama said that she will communicate with markets on Monday if needed to stabilize the JPY and stressed that Japan retains the right to intervene against moves that deviate from fundamentals. Moreover, Japan's Chief Cabinet Secretary Minoru Kihara said that he is concerned about one-sided FX moves, while currently, diplomat Atsushi Mimura stated that he was closely watching moves with a high sense of urgency.

This, in turn, prompts some intraday short-covering around the JPY, which, along with some follow-through US Dollar (USD) selling, contributes to the USD/JPY pair's downfall. The USD Index, which tracks the Greenback against a basket of currencies, extends its retracement slide from a two-week high, touched last Thursday, amid bets that the US Federal Reserve (Fed) will lower borrowing costs at least two more times this year. Furthermore, concerns about the US central bank's independence exert additional downward pressure on the buck.

US Treasury Secretary Scott Bessent on Thursday refused to rule out the possibility of a criminal investigation of Kevin Warsh if he ends up refusing to cut interest rates. Moreover, US President Donald Trump said on Saturday that he might sue his newly selected Fed chair nominee if he didn’t lower rates. This, in turn, favors the USD bears and backs the case for further USD/JPY losses. Traders, however, might refrain from placing aggressive bets and opt to wait for this week's release of the US Nonfarm Payrolls (NFP) report and the US consumer inflation figures.

USD/JPY 1-hour chart

Technical Analysis:

The USD/JPY pair has been showing some resilience below the 100-hour Simple Moving Average (SMA) and finding some support near the 156.25-156.20 region. The latter should act as a key pivotal point, which, if broken decisively, should pave the way for a further depreciating move. The Moving Average Convergence Divergence (MACD) histogram remains sub-zero and has begun to contract, indicating the MACD line sits below the Signal line while momentum lingers near the zero mark. The Relative Strength Index (RSI) stands at 44 (neutral), reflecting subdued demand after a pullback from earlier overbought readings.

Meanwhile, spot prices hold above the 100-hour SMA, which continues to slope higher and offers initial dynamic support, underscoring a short-term bullish bias. However, a close back beneath the average would risk a deeper consolidation. A shift of the MACD histogram back above zero would strengthen upside momentum. An RSI recovery through 50 would endorse renewed buying pressure, whereas failure to clear that threshold would keep ranges in play.

(The technical analysis of this story was written with the help of an AI tool.)