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Japanese Yen fills weekly bullish gap despite supportive fundamental backdrop

  • Japanese Yen struggles to capitalize on modest intraday gains amid talks of a snap election in Japan.
  • Intervention fears, BoJ rate hike bets, geopolitical risks, and trade war concerns could support the JPY.
  • The emergence of fresh USD selling might contribute to capping any attempted USD/JPY recovery.

The Japanese Yen (JPY) extends its intraday pullback from over a one-week high, touched against a broadly weaker US Dollar (USD) earlier this Monday, and fills the weekly bullish gap during the first half of the European session. Speculations that Prime Minister Sanae Takaichi may soon call a snap election to cement her authority and further boost the expansionary fiscal policy act as a headwind for the JPY. However, a warning of a possible intervention by Japan's Finance Minister Satsuki Katayama, to counter weakness in the domestic currency, could act as a tailwind for the JPY.

Furthermore, prospects for an early interest rate hike by the Bank of Japan (BoJ) should contribute to limiting losses for the JPY. Meanwhile, US President Donald Trump vowed on Saturday to impose tariffs on eight European countries that have opposed his plan to take Greenland, reigniting trade war concerns. This, along with heightened geopolitical tensions, tempers investors' appetite for riskier assets and could further offer support to the safe-haven JPY. The USD, on the other hand, retreats from its highest level since December 9. This warrants some caution before confirming that the USD/JPY pair's pullback from the 18-month top, touched last week, has run its course and positioning for any further recovery.

Japanese Yen attracts intraday sellers as bulls seem hesitant amid political uncertainty

  • Japan’s Finance Minister Satsuki Katayama said on Friday that all options, including a direct and coordinated intervention with the US, are being considered to address the recent weakness in the Japanese Yen.
  • A Reuters report, citing sources, suggests that some policymakers inside the Bank of Japan see scope to raise interest rates sooner than markets currently expect, as early as April, further lending support to the JPY.
  • US President Donald Trump threatened to slap a 10% tariff on goods from eight European countries starting from February 1, until the US is allowed to buy Greenland, triggering a fresh wave of the risk-aversion trade.
  • European Union ambassadors reached a broad agreement on Sunday to intensify efforts to dissuade Trump from imposing levies on allies, while also preparing retaliatory measures should the duties go ahead.
  • Moreover, geopolitical risks stemming from the protracted Russia-Ukraine war and lingering worries about a possible US military strike against Iran benefit the JPY's safe-haven status at the start of a new week.
  • The US Dollar attracts heavy selling as fresh trade war fears trigger a crisis of confidence in US assets, which offsets reduced bets for two more interest rate cuts by the US Federal Reserve by the end of this year.
  • Reports suggest that Japan's Prime Minister Sanae Takaichi plans to dissolve parliament and call a snap parliamentary election in the first half of February to seek public backing for her fiscally expansionist policies.
  • With Takaichi's popularity running high, a win would bolster her coalition government’s parliamentary majority and cement her authority to pursue her spending plans, which warrants caution for the JPY bulls.
  • Traders might also opt to wait for the release of the US Personal Consumption Expenditure (PCE) Price Index on Thursday and the crucial BoJ monetary policy decision on Friday before placing fresh directional bets.

USD/JPY bounces off 61.8% Fibo. near 157.45-157.40; not out of the woods yet

Chart Analysis USD/JPY

The USD/JPY pair finds decent support near the 61.8% Fibonacci retracement level of the recent move up from the monthly peak. A subsequent strength beyond the 50% retracement level, around the 157.80 area, could pave the way for further gains, though a stronger recovery would need additional momentum confirmation.

The Moving Average Convergence Divergence (MACD) hovers just below the zero line as readings firm toward -0.01, suggesting fading bearish pressure. The Relative Strength Index (RSI) prints 43 (neutral-bearish), stabilizing after an earlier oversold dip.

Meanwhile, the USD/JPY pair trades below the flattening 100-hour Simple Moving Average (SMA), around the 158.55 region, which should cap rebounds. A close back above this average would tilt the near-term tone higher.

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

Japanese Yen Price Today

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the US Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD-0.19%-0.07%-0.02%-0.17%-0.11%-0.30%-0.42%
EUR0.19%0.12%0.20%0.03%0.09%-0.11%-0.23%
GBP0.07%-0.12%0.08%-0.09%-0.03%-0.22%-0.35%
JPY0.02%-0.20%-0.08%-0.17%-0.11%-0.30%-0.42%
CAD0.17%-0.03%0.09%0.17%0.06%-0.12%-0.26%
AUD0.11%-0.09%0.03%0.11%-0.06%-0.20%-0.32%
NZD0.30%0.11%0.22%0.30%0.12%0.20%-0.13%
CHF0.42%0.23%0.35%0.42%0.26%0.32%0.13%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).

Author

Haresh Menghani

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

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