The Japanese Yen (JPY) remains under pressure near its weekly low versus the US Dollar following the Bank of Japan’s (BoJ) widely anticipated decision to keep short-term interest rates unchanged. Market participants remain cautious, refraining from fresh directional bets as they await guidance on the timing of any further policy tightening. In this context, comments from BoJ Governor Kazuo Ueda during the post-meeting press conference are expected to play a decisive role in shaping near-term JPY price action.
Meanwhile, domestic political uncertainty, concerns over Japan’s fiscal position, and an overall risk-positive market environment continue to weigh on the safe-haven Yen. A modest rebound in the US Dollar has also provided support to the USD/JPY pair. However, persistent speculation that Japanese authorities could step in to curb excessive currency weakness is prompting traders to remain cautious before positioning for further downside in the Yen.
Japanese Yen maintains bearish tone amid political and fiscal concerns
As widely expected, the Bank of Japan concluded its two-day policy meeting on Friday by maintaining the short-term interest rate at 0.75%. Attention now turns to Governor Ueda’s press briefing, which could offer fresh clues on the future policy path and influence the near-term direction of both the JPY and USD/JPY.
Earlier data showed that Japan’s National Consumer Price Index (CPI) eased to 2.1% year-on-year in December from 2.9% previously. Core CPI, which excludes fresh food, slowed to 2.4% from 3.0% in November. Meanwhile, CPI excluding both fresh food and energy dipped slightly to 2.9% from 3.0%, though it remains comfortably above the BoJ’s 2% target.
These inflation readings continue to support expectations that the BoJ may pursue further policy normalization. Adding to the optimism, a private-sector survey revealed that Japan’s manufacturing activity expanded in January for the first time in seven months. The S&P Global flash manufacturing PMI climbed to 51.5—its highest level since August 2024—while the services PMI improved to 52.8 from 51.1.
On the political front, Prime Minister Sanae Takaichi is set to dissolve parliament ahead of a snap election scheduled for February 8, aiming to secure a stronger mandate to advance fiscally expansionary reforms. However, investor confidence has been shaken by her proposal to temporarily cut the 8% food consumption tax, triggering a sharp sell-off in government bonds and adding further pressure on the Yen.
At the same time, easing geopolitical tensions—following US President Donald Trump’s announcement of a potential NATO-related deal involving Greenland—have reduced demand for traditional safe-haven assets, further undermining the JPY.
In contrast, expectations of a more hawkish BoJ stance stand in sharp divergence with growing market conviction that the US Federal Reserve will cut interest rates at least twice this year. Additionally, broader de-dollarization trends have offset strong US economic data, pulling the US Dollar back toward a two-week low and potentially limiting further upside in USD/JPY.
USD/JPY outlook: upside momentum may accelerate above channel resistance
From a technical perspective, USD/JPY remains supported above the rising 100-hour Simple Moving Average (SMA) at 158.16, preserving a bullish near-term bias. The Moving Average Convergence Divergence (MACD) indicator sits slightly below the Signal line near the zero level, while the contracting negative histogram suggests waning bearish momentum. Meanwhile, the Relative Strength Index (RSI) holds around 56, indicating steady buying interest.
Price action continues to respect the ascending channel originating from the 157.35 area, with immediate resistance seen near 158.91. A decisive break above this level could pave the way for an extension of the current upward move.
On the downside, initial support is located near the lower boundary of the ascending channel around 157.96. A sustained break below this level would weaken the bullish structure and shift focus toward increased downside risks.
