USD/JPY Price Forecast: Japan’s weak GDP-inspired short-covering move might get sold into

USD/JPY kicks off the new week on a positive note as Japan’s weak Q4 GDP weighs on the JPY.
The divergent BoJ-Fed policy expectations warrant caution before positioning for further gains.
Traders now look forward to the FOMC minutes on Wednesday for some meaningful impetus.

Haresh Menghani FXStreet

The USD/JPY pair gains some positive traction at the start of a new week and moves away from its lowest level since January 28, around the 152.30-152.25 region, touched last Thursday. The Japanese Yen (JPY) weakens following the disappointing release of the Q4 GDP report, which tempers bets for an immediate rate hike by the Bank of Japan (BoJ). Apart from this, the underlying bullish tone undermines the JPY's safe-haven status and acts as a tailwind for the currency pair amid a modest US Dollar (USD) uptick.

Japan’s Cabinet Office reported earlier today that the Gross Domestic Product (GDP) in the world’s fourth-biggest economy grew by just 0.1% during the October-December quarter, undershooting market forecasts of 0.4% rise. Adding to this, the previous quarter's reading was revised down to show a contraction of 0.7%, dampening hopes for further BoJ policy tightening in April. Meanwhile, the data puts more pressure on Japan's Prime Minister Takaichi to announce stimulus after her landslide victory.

This, in turn, remains supportive of the upbeat market mood and turns out to be another factor weighing on the JPY. Meanwhile, investors remain hopeful that Takaichi could be fiscally responsible. and that her policies will boost the economy. This might prompt the BoJ to stick to its policy normalization path, which should help limit deeper losses for the JPY. The USD, on the other hand, struggles to lure buyers amid dovish Federal Reserve (Fed) expectations, which further contribute to keeping a lid on the USD/JPY pair.

Despite last Wednesday's blowout US Nonfarm Payrolls (NFP) report, traders ramped up their bets that the US central bank will lower borrowing costs in June after data released on Friday showed that consumer inflation rose less than expected in January. In fact, the headline US Consumer Price Index (CPI) rose 0.2%, while the core gauge climbed 0.3% last month. This, along with threats to the Fed's independence, keeps the USD bulls on the defensive and warrants caution before positioning for a further USD/JPY upside.

Meanwhile, trading volumes remain thin on the back of the Lunar New Year holidays in China, South Korea, and Taiwan. Moreover, US markets will be closed on Monday in observance of Presidents' Day. Traders might also opt to wait for the release of FOMC minutes on Wednesday. This, along with speeches from influential FOMC members, will be looked for more cues about the Fed's rate-cut path, which will drive the USD demand and provide a fresh impetus to the USD/JPY pair during the latter part of the week.

USD/JYP daily chart

Technical Analysis:

From a technical perspective, the USD/JPY pair continues to show resilience below the 200-day Exponential Moving Average (SMA) on Monday and rebounds from the vicinity of the 38.2% Fibonacci retracement level of the April 2025-January 2026 rally. Spot prices hold above the rising 200-EMA at 152.55, maintaining a broader bullish bias. Pullbacks would find initial support at that average.

That said, the Moving Average Convergence Divergence (MACD) line remains below the Signal line, and both sit below the zero line, while the negative histogram contracts, suggesting fading bearish pressure. Moreover, the daily Relative Strength Index (RSI) at 39.75 reflects subdued momentum.

Meanwhile, the 38.2% Fibo. retracement level at 152.11 might continue to offer near-term support, with the 50.0% retracement at 149.80 as the next downside level. Holding above 152.11 would keep recovery attempts in play, while a daily close beneath 149.80 would warn of a deeper retracement within the broader advance.

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

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Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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