The Japanese yen (JPY) continued to strengthen against the US dollar during Asian trading on Tuesday, remaining close to its recent one-week high. This upward movement is partly fueled by expectations that Japanese officials might intervene to prevent further depreciation of the currency. Moreover, rising geopolitical tensions surrounding Greenland, as well as renewed trade war concerns, have likely affected investor sentiment, reinforcing the yen’s role as a safe haven.
Additionally, there are growing expectations for the Bank of Japan (BOJ) to consider an early interest rate hike, which is also lending support to the yen’s exchange rate. Nonetheless, traders might be hesitant to make new bullish moves until they receive the upcoming update on BOJ policy this Friday. Domestic political uncertainty could further complicate things, particularly with the recent uptick in US dollar (USD) purchases limiting losses for the USD/JPY pair, which is currently hovering around the 158.00 level.
Japanese yen gains support from intervention concerns and safe flight
- Japan’s Prime Minister Sanae Takaichi announced plans on Monday to dissolve parliament and call for a snap election on February 8. He hopes to gain a stronger mandate to implement an ambitious expansionary fiscal policy. A majority win for his party, the Liberal Democratic Party, would allow him more leeway in pursuing these policies, but a slim majority could heighten political instability.
- Japan’s Finance Minister Satsuki Katayama expressed on Friday that all options, including direct market intervention, are on the table to address the recent yen weakness. He also hinted at the possibility of collaborating with the United States for joint intervention to bolster the yen. This, combined with hawkish sentiment around the Bank of Japan and ongoing safe-haven demand, helped revive interest in the yen on Tuesday.
- The yen recently dropped to an 18-month low, increasing inflation pressures that may compel the BOJ to act sooner rather than later. Recent data shows that Japan’s inflation has exceeded the BOJ’s 2% target for four consecutive years. Also, sources indicate that some BOJ policymakers believe there might be a chance for rate increases sooner than anticipated, perhaps as early as April.
- However, JPY bulls seem cautious, opting to wait for further clarity regarding the timing of the BOJ’s next rate hike. All attention is on BOJ Governor Kazuo Ueda’s remarks following Friday’s policy decision. Analysts expect the BOJ to maintain the overnight interest rate at its current level after a recent increase to 0.75%, the highest in 30 years.
- In the U.S., President Trump’s threats to impose new tariffs on eight European nations due to Greenland tensions have drawn backlash from European leaders and added to market uncertainty. As the situation around Russia and Ukraine continues, this has positively impacted the Japanese yen’s status as a safe haven. Still, some instability in the USD may somewhat mitigate further losses for the USD/JPY pair during Asian trading.
- Traders have scaled back expectations for two additional rate cuts from the Federal Reserve in 2026, especially after Trump expressed a desire to retain National Economic Council member Kevin Hassett. Such moves imply that a new replacement for outgoing Fed Chairman Jerome Powell might be sought, helping the dollar attract buyers and halt its recent decline after reaching a month-long high.
USD/JPY looks vulnerable while below 100-hour SMA hurdle
The recent rebound from the 61.8% Fibonacci retracement level of January’s rally has struggled to gain momentum and faltered just below the 38.2% Fibonacci retracement point. The market is currently centered around the 100-hour simple moving average (SMA) near the 158.35 range, which serves as a critical pivot level. With the USD/JPY pair below this average, the outlook remains bearish. The Moving Average Convergence Divergence (MACD) indicator hovers near neutral, while the histogram approaches flatness, keeping the sentiments balanced. Meanwhile, the Relative Strength Index (RSI) sits at 50, reflecting a neutral position after a slight recovery.
If the pair continues to weaken past the 38.2% Fibonacci level, attention will shift to the 50% retracement support at 157.80, with the potential for a target at the 61.8% level around 157.40. On the other hand, any recovery attempts would likely face initial resistance at the 100-period SMA around 158.35. For a notable breakout, momentum must improve, particularly with the MACD climbing from zero and the RSI surpassing 55, creating higher upside potential.
(The technical analysis in this story was written with the help of AI tools.)
