Japanese Yen struggles to build on modest intraday gains amid mixed cues
- Japanese Yen bears take some profits off the table heading into Japan’s snap election on Sunday.
- Rising bets for an imminent BoJ rate hike and the risk-off impulse also benefit the safe-haven JPY.
- The USD pauses the recent recovery from a four-year low and further exerts pressure on USD/JPY.
The Japanese Yen (JPY) remains on the front foot against its American counterpart through the Asian session on Friday, though it lacks bullish conviction and remains close to a two-week low, touched the previous day. Traders remain on high alert amid the possibility of a coordinated Japan-US intervention to stem the JPY's decline. This, along with a turnaround in the global risk sentiment and a rise in volatility, benefits the JPY's safe-haven status. Moreover, hawkish Bank of Japan (BoJ) expectations turn out to be another factor that assists the JPY to snap a five-day losing streak.
Meanwhile, data released earlier today showed Japan’s Household Spending fell sharply in December, underscoring the drag from higher prices on consumer activity and reinforcing expectations for an earlier BoJ rate hike. However, growing concerns over Japan's fiscal situation and political uncertainty might seem to hold back the JPY bulls from placing fresh bets. The US Dollar (USD), on the other hand, preserves the recent strong recovery gains and contributes to limiting the downside for the USD/JPY pair ahead of Japan's snap lower house election on February 8.
Japanese Yen remains supported by BoJ rate hike bets and safe-haven flows
- Data released earlier this Friday showed that Household Spending in Japan declined 2.6% YoY in December 2025, marking a sharp contraction after a 2.9% rise in the previous month. This suggests that elevated living costs are weighing on consumption, reinforcing the Bank of Japan's resolve to counter inflation and backing the case for an early interest rate hike.
- In fact, the Summary of Opinions from the BoJ's January meeting, released earlier this week, showed that policymakers debated mounting price pressures from a weak Japanese Yen. Moreover, board members judged that further interest rate increases were appropriate over time. This assists the JPY to gain some positive traction during the Asian session on Friday.
- Asian stocks extended losses into a second day as a selloff on Wall Street intensified amid a global rout in tech equities, and also benefited the safe-haven JPY. The US Dollar, on the other hand, consolidates its recent gains to a two-week peak and prompts traders to lighten their USD/JPY bullish bets ahead of Japan's snap lower house election on Sunday, February 8.
- Japan's Prime Minister Sanae Takaichi's Liberal Democratic Party (LDP) looks set for a big victory. This would give Takaichi a greater grip on Japan's parliament and more headroom to carry out her pro-stimulus macro policies much more forcefully. The market seems worried that expansionary fiscal plans may hurt Japan's already strained public finances quite badly.
- From the US, the US Department of Labor reported on Thursday that the number of citizens submitting new applications for unemployment insurance rose to 231K for the week ending January 31 from the previous week’s 209K. The reading was also higher than the 212K initial estimates and comes on top of dismal private-sector employment details released Wednesday.
- Adding to this, the Job Openings and Labor Turnover Survey (JOLTS) revealed that the number of job openings on the last business day of December stood at 6.542 million compared to the previous month's downwardly revised print of 6.928 million. This pointed to labor market weakness and strengthened the case for more interest rate cuts by the US Federal Reserve.
- In fact, traders are currently pricing in the possibility that the US central bank will lower borrowing costs two more times in 2026. This, in turn, keeps a lid on the recent strong US Dollar recovery from a four-year trough and also contributes to the USD/JPY pair's modest pullback from a two-week high, levels above the 157.00 mark, touched on Thursday.
- Traders now look forward to the preliminary release of the Michigan Consumer Sentiment Index and Inflation Expectations. This, along with comments from influential FOMC members, would drive the USD and the USD/JPY pair later during the North American session. The market reaction, however, is likely to be muted ahead of the key political event in Japan.
USD/JPY holds above 200-SMA breakpoint; bulls not ready to give up
The overnight breakout through the 156.50 hurdle, or the 200-period Simple Moving Average (SMA) on the 4-hour chart, was seen as a key trigger for the USD/JPY bulls. The SMA’s gradual ascent underscores a steady broader trend, with spot prices holding above it to maintain a bullish bias. The Moving Average Convergence Divergence (MACD) slips below the Signal line near the zero level as the histogram turns negative and begins to expand, suggesting fading upside momentum. RSI stands at 63, easing from earlier overbought readings and reinforcing a moderating tone.
Staying above the rising 200-period SMA would keep the path of least resistance pointed higher, while a sustained break below that average could tilt the bias toward a corrective phase. On momentum, further expansion of the negative MACD histogram would reinforce downside pressure, whereas a quick return above zero would neutralize the bearish crossover. RSI holding above 50 supports an upside bias; a drop toward 50 would flag waning demand.
(The technical analysis of this story was written with the help of an AI tool.)
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
