The USD/JPY pair attracted some dip-buying during the Asian session on Tuesday, halting its previous decline from a one-and-a-half-year peak of 159.44 and is now trading in a narrow range around 157.95. Market expectations that Japanese authorities will intervene to curb further yen weakness continue to provide support for the Japanese currency. Furthermore, escalating geopolitical tensions surrounding Greenland and renewed concerns about a trade war have dampened investor sentiment, further solidifying the yen's safe-haven status.
Additionally, the prospect of an earlier interest rate hike by the Bank of Japan serves as another factor supporting the yen. However, traders may prefer to wait for the BoJ's key policy update on Friday before making fresh bullish bets on the yen. Beyond that, domestic political uncertainty in Japan could limit the currency's upside potential. During the Asian session on Tuesday, the US Dollar Index held steady near 99.05, which may help cap the downside for USD/JPY. The yen is benefiting from safe-haven inflows and intervention worries, yet bulls appear hesitant ahead of the BoJ's decision. Japanese Prime Minister Sanae Takaichi stated on Monday that she will dissolve parliament this week and call a snap election for February 8th, hoping to secure a stronger mandate to advance her fiscal expansion policies. If the ruling Liberal Democratic Party secures an absolute majority in the lower house, Takaichi would have greater freedom to push her agenda; a mere slim majority, however, would heighten political uncertainty.
Simultaneously, Japan's Finance Minister, Tsukasa Katayama, warned last Friday that authorities would consider all options, including direct market intervention, to address the yen's recent weakness. Katayama also hinted at the possibility of joint intervention with the United States to support the currency. This move, coupled with market expectations for a hawkish BoJ and ongoing safe-haven buying, collectively boosted demand for the yen on Tuesday. The yen's recent slide to an 18-month low could exacerbate inflationary pressures and force the Bank of Japan to act more quickly. Indeed, data released last Friday showed that Japan's inflation rate has averaged above the BoJ's 2% target for four consecutive calendar years. Moreover, sources indicated that some policymakers within the BoJ see room for a rate hike as early as April, which is sooner than current market expectations.
Nevertheless, yen bulls seem reluctant to place aggressive bets, opting instead to wait for more clues regarding the timing of the BoJ's next rate hike. Consequently, market focus remains squarely on the post-policy decision press conference by BoJ Governor Kazuo Ueda on Friday. The Bank of Japan is expected to leave policy unchanged at the conclusion of its two-day meeting—last month, the bank raised its overnight rate to 0.75%, the highest level in 30 years. After former President Trump expressed his desire for National Economic Council Director Kevin Hassett to remain in his position, traders scaled back bets on the Federal Reserve implementing two additional rate cuts in 2026. This, in turn, suggests that the successor to outgoing Fed Chair Jerome Powell will be a different candidate, which could help attract buying interest for the US Dollar. The USD/JPY pair shows bearish dominance while trading below the key resistance of the 100-hour Simple Moving Average.
Following a rebound from the January low, the pair's overnight recovery from the 61.8% Fibonacci retracement level (157.38) lacked follow-through, failing to sustain a break above the 38.2% Fibonacci level (158.16) and stalling ahead of the 100-hour Simple Moving Average (SMA) at 158.32, which now acts as a key pivot point. The pair's sustained trading below this declining moving average maintains a bearish bias. The Moving Average Convergence Divergence (MACD) indicator remains near the zero line, with its histogram flattening, reinforcing a neutral tone. The Relative Strength Index (RSI) is positioned at 50 (neutral), indicating a market in balance after a mild rebound.
On the downside, a break below the 38.2% Fibonacci retracement (158.16) would shift focus towards the 50% retracement support at 157.77. A breakdown below this level could see the pair test the 61.8% retracement at 157.38. On the upside, any rebound attempt faces initial resistance at the 100-period moving average of 158.32. A decisive move above this level, confirmed by the MACD indicator rising noticeably away from the zero line and the RSI climbing above 55 to gain momentum, would be needed to establish a valid breakout and open up further upside potential.
(USD/JPY hourly chart, source: EasyForex) As of 11:14 Beijing time, USD/JPY was trading at 157.96/97.
Comments