The Japanese Yen exchange rate fluctuates between expectations of central bank intervention and political risks.

During the recent Asian trading session, the Japanese Yen showed a modest rally against the US dollar, ending a two-day decline. Behind this rebound, Japanese Finance Minister Shunichi Katayama’s latest comments on US-Japan coordinated intervention reignited market expectations for Yen appreciation. Supported by a hawkish stance from the Bank of Japan, there appears to be a policy consensus to curb excessive Yen depreciation. However, this upward momentum is restrained by multiple factors—uncertainties in domestic politics, Prime Minister Fumio Kishida’s aggressive fiscal commitments, the recent strong rebound in the dollar, and an overall improvement in market risk sentiment—all of which have somewhat diminished the Yen’s appeal as a safe-haven asset.

Central Bank Intervention Concerns Boost Yen, but Policy Outlook Remains Unclear

Market attention continues to focus on potential coordinated intervention to stabilize the exchange rate, supported by expectations of US-Japan cooperation. Last Wednesday, Katayama stated that Japan will continue close coordination with US authorities based on the framework of the US-Japan joint statement reached last September, and will respond appropriately when necessary. This statement opens space for possible joint intervention and also signals that the Bank of Japan is increasingly uneasy about inflationary pressures stemming from Yen weakness.

In the BOJ’s January meeting summary, members discussed in depth the rising prices caused by a weak Yen, reflecting an internal hawkish consensus. This shift in policy bias has helped support the Yen in the short term. However, Katayama’s defense of the Yen’s weakness on behalf of Prime Minister Fumio Kishida indicates complex interests within Japanese politics regarding exchange rate policies, raising doubts about the long-term commitment to a strong Yen.

Political uncertainties ahead of early elections in Japan in early February add further variables. Prime Minister Kishida pledged that if the Liberal Democratic Party wins the election, the consumption tax on food will be suspended for two years. This policy uncertainty has raised concerns about Japan’s fiscal sustainability. Such uncertainties tend to limit aggressive bullish bets on safe-haven assets like the Yen, despite signals from the central bank pointing toward a hawkish stance.

Dollar Strength and Improved Risk Sentiment Limit Yen Gains

While market focus remains on BOJ policy, the dollar’s performance is constraining Yen appreciation. US President Donald Trump announced last Monday that the US had reached a trade agreement with India, immediately lowering tariffs on mutual goods, which effectively improved risk sentiment. Meanwhile, tensions between the US and Iran showed signs of easing, further reducing market risk premiums. In this environment, demand for safe assets like the Yen naturally declines, exerting downward pressure on the Yen.

Global manufacturing data also support the dollar’s rebound. The latest survey from the Institute for Supply Management (ISM) showed US factory activity grew for the first time in a year, with the January Manufacturing PMI rising from 47.9 to 52.6, indicating a clear improvement in the US manufacturing sector. This positive data helped the dollar recover from last Thursday’s yearly lows, creating strong resistance against further declines in USD/JPY.

Market expectations also include that former Federal Reserve Governor Kevin Warsh, who is awaiting Senate approval to succeed Jerome Powell as Fed Chair (expected to take office in May), is known for his hawkish stance. His appointment is likely to support the dollar, as markets anticipate a more cautious approach to inflation expectations. This also helps limit further declines in USD/JPY, keeping short-sellers cautious.

Technical Outlook: Key Support Levels and Future Direction

On the technical side, USD/JPY is currently struggling near the 50% retracement level of the recent decline from 159.23 to 152.10. A sustained bullish breakout could push the pair toward 156.45, which coincides with the 61.8% Fibonacci retracement and the 200-week simple moving average (SMA) on the 4-hour chart. Notably, the 200-week SMA is trending downward around 156.50, maintaining a generally bearish bias. Currently trading below this long-term moving average, any rebound near this level may face significant selling pressure.

A decisive break above this key zone could open further upside potential; however, failure to do so would keep the bears in control, risking a further correction within the existing bearish structure. Momentum indicators show the MACD still in positive territory and above the signal line, but with signs of weakening as the histogram narrows. The RSI stands at 61, above the midpoint but not overbought, suggesting that unless the pair can sustain a break above the 200-week SMA, any upward moves are likely corrective rather than trend-reversing.

Market participants are currently awaiting US JOLTS job openings data, which could provide further trading cues during North American hours. However, amid mixed fundamentals—intervention expectations, political risks, a strong dollar, and rising policy signals from Japan—traders should exercise caution before establishing new USD/JPY directional positions, awaiting clearer policy signals and confirmation of market trends.

(Technical indicator interpretations are based on data tools.)