Japanese Yen bulls seem hesitant amid fiscal concerns, ahead of snap election

The Japanese Yen (JPY) struggles to capitalize on its modest intraday strength against a broadly retreating US Dollar (USD) and remains close to a two-week trough, touched the previous day. Investors remain concerned about Japan's financial health on the back of Prime Minister Sanae Takaichi's expansionary fiscal plans. Moreover, the political uncertainty ahead of the snap election on February 8 is holding back traders from placing aggressive bullish bets around the JPY.

Meanwhile, traders remain on high alert amid the possibility of a coordinated Japan-US intervention to stem the JPY's weakness. This, along with a turnaround in the risk sentiment and bets that the Bank of Japan (BoJ) will stick to its policy normalization path, assists the JPY to snap a five-day losing streak. The USD, on the other hand, is pressured by bets for more rate cuts by the US Federal Reserve (Fed), which weighs on the USD/JPY pair through the early European session.

Japanese Yen remains on the front foot amid BoJ rate hike bets and risk-off mood

• 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 bullish potential seems intact; 200-SMA on H4 holds the key

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.)