Japanese Yen continues to lose ground against USD as USD/JPY climbs above 157.00

The Japanese Yen (JPY) continues with its relative underperformance against a mildly positive US Dollar (USD) amid worries about the country's financial health on the back of Prime Minister Sanae Takaichi's expansionary fiscal plans. This, along with political uncertainty ahead of the snap election on February 8, has been another bearish development for the JPY. Meanwhile, softer consumer inflation figures from Japan's capital city – Tokyo – released last week tempered bets for an early interest rate hike by the Bank of Japan (BoJ). This further undermines the JPY and lifts the USD/JPY pair beyond the 157.00 mark, or a two-week high, during the first half of the European session on Thursday.

Traders, however, remain on high alert amid the possibility of a coordinated Japan-US intervention to stem the JPY's decline. Moreover, the BoJ is still expected to stick to its gradual policy tightening narrative, which marks a significant divergence in comparison to bets that the US Federal Reserve (Fed) will lower borrowing costs two more times this year. Dovish Fed expectations might keep a lid on the USD and offer some support to the lower-yielding JPY, warranting some caution before positioning for any further appreciating move for the USD/JPY pair. Traders now look forward to the release of the US JOLTS Job Openings and Weekly Initial Jobless Claims for some impetus.

Japanese Yen selling remains unabated amid fiscal woes, political uncertainty

• The incumbent Japanese Prime Minister Sanae Takaichi’s Liberal Democratic Party (LDP) is poised to score a strong victory in the lower house election on February 8. The outcome would give Takaichi a greater grip on Japan's parliament and more headroom to carry out her expansionary fiscal plans.
• Takaichi pledged to suspend the 8% consumption tax on food for two years as part of her election campaign, raising concerns about Japan’s fiscal outlook amid fears of debt-funded spending. This has been a key factor behind the Japanese Yen's relative underperformance since the beginning of this week.
• Moreover, Takaichi talked up the benefits of a weaker currency during a campaign speech. Although Takaichi later softened the stance, her comments raised doubts over whether authorities would intervene to support the domestic currency. This exerts additional downward pressure on the JPY.
• Meanwhile, data released last Friday showed that the headline Consumer Price Index (CPI) in Japan's capital city – Tokyo – fell last month to its weakest level since February 2022. This pointed to signs of softer demand-driven price pressure and reduced urgency for the Bank of Japan to tighten further.
• However, the Summary of Opinions from the BoJ's January meeting this week highlighted board members' hawkish view amid mounting price pressures from a weak JPY. Moreover, a private survey showed that Japan’s services sector growth accelerated in January at its fastest pace in almost a year.
• This suggests that a BoJ rate hike in the first half of 2026 remains on the table. In contrast, traders are pricing in the possibility of two more interest rate cuts by the US Federal Reserve this year, which caps the USD/JPY pair near the 157.00 mark, or a nearly two-week top set earlier this Thursday.
• In fact, US President Donald Trump said that he would have passed on Kevin Warsh as his nominee to lead the Federal Reserve if he had expressed a desire to hike interest rates. Trump further added that there was not much doubt that the US central bank would lower interest rates.
• The US Dollar, however, has climbed to a fresh high since January 23 in the wake of hawkish comments from Fed Governor Lisa Cook, saying that risks are skewed toward higher inflation. This could support the USD/JPY pair as traders now look to a duo of US labor market reports for a fresh impetus.
• Thursday's US economic docket features the delayed release of the JOLTS Job Openings data, along with the usual Weekly Initial Jobless Claims. This, along with speeches by influential FOMC members, would drive the USD and produce short-term trading opportunities around the USD/JPY pair.

USD/JPY's constructive technical setup backs the case for a further appreciating move

The overnight breakout through the 156.50 confluence – comprising the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 61.8% Fibonacci retracement level of the 159.13-152.06 downfall – favors the USD/JPY bulls. The Moving Average Convergence Divergence (MACD) stands in positive territory while its histogram contracts, suggesting fading bullish momentum. The Relative Strength Index (RSI) prints 68.92, just below overbought.

This, in turn, suggests that the rebound could extend toward the 78.6% retracement at 157.64, while a rejection near resistance would risk a pullback to the 50% retracement at 155.60. A re-expansion of the MACD histogram and a firm RSI above 70 would strengthen the bullish case; otherwise, momentum looks prone to consolidation below resistance.

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