USD/JPY. Analysis and Forecast

Ben Graham · January 30

The Japanese yen continues to weaken amid fading expectations of a rate increase by the Bank of Japan. At the same time, concerns over the country's financial stability under the reflationary policies of Prime Minister Sanae Takaichi, along with political uncertainty ahead of the snap elections on February 8, are undermining the yen's status as a safe-haven asset. Combined with moderate US dollar strength, this is pushing the USD/JPY pair toward the round 154.00 level.

Speculation about possible intervention by Japanese authorities to curb further yen depreciation may restrain bears from taking aggressive positions against the yen. In addition, economic risks stemming from tariff threats by US President Donald Trump and ongoing geopolitical instability could reinforce the yen's defensive appeal. Meanwhile, the US dollar is struggling to attract buyers due to concerns about Federal Reserve actions and bets on monetary policy easing, which limits the upward potential for USD/JPY.

The Japanese yen also remains under pressure as Tokyo CPI data weaken the outlook for further monetary tightening by the Bank of Japan amid fiscal and political challenges. A government report released on Friday showed that headline CPI in the capital fell from 2.0% to 1.5% in January—the lowest level since February 2022. Core CPI, excluding fresh food, dropped to 2.0% from 2.3% in December, while CPI excluding fresh food and energy slipped to 2.4% from 2.6% a month earlier.

These indicators point to easing demand-driven price pressures, reducing the likelihood of further tightening by the Bank of Japan after the December hike in the policy rate to 0.75%, a 30-year high. Prime Minister Sanae Takaichi is focusing her election agenda on expanding stimulus and suspending the consumption tax on food, raising questions about Japan's fiscal discipline. On Friday, following a move by Japan's Ministry of Finance, rumors emerged about an unusual rate check by the New York Fed, increasing the chances of coordinated US–Japan intervention to counter yen weakness.

On the US dollar side, on Thursday US President Donald Trump announced the withdrawal of certification for Canadian aircraft and the imposition of 50% tariffs on them until US-made Gulfstream aircraft receive certification in Canada, fueling escalation between the North American neighbors. This, along with US–Iran tensions and the prolonged Russia–Ukraine conflict, should help limit losses in the safe-haven yen. The US continues to reinforce the Middle East with warships and fighter jets, while Defense Secretary Pete Hegseth confirmed full readiness to act on Trump's orders.

Russia has once again invited Ukrainian President Volodymyr Zelensky to Moscow for peace talks, but progress remains elusive due to fundamental disagreements, including Kyiv's refusal to cede the entire Donbas to end the nearly four-year conflict. Meanwhile, the US dollar is gaining a slight boost on rumors of Kevin Warsh becoming the new Fed Chair, supporting the USD/JPY pair. Trump has promised to name the candidate for the Fed Chair position today, Friday.

For better trading opportunities today, focus should be placed on the US Producer Price Index (PPI) as well as Federal Reserve speeches, which could fuel demand for the dollar and set the tone for USD/JPY ahead of the weekend.

From a technical perspective, the pair has approached the round 154.00 level, where the 100-day SMA is located. A break above it would open the way toward the round 155.00 level. If prices fail to hold above 152.70 and the round 152.00 level, a faster decline toward the highly significant 200-day SMA could follow.

The table below shows the percentage changes of the Japanese yen against major currencies today. The Japanese yen recorded the most notable gain against the Australian dollar.