During the Asian trading session on Friday, the USD/JPY pair saw a slight rebound from a two-week low near 152.30, yet overall movement remained constrained near the 153 level, with the recovery lacking sustained momentum. Market sentiment appeared divided, resulting in a temporary stalemate between bullish and bearish forces.
In Japan, market expectations suggest that the new Prime Minister, Sanae Takaichi, may adopt a more cautious fiscal approach while implementing structural measures to stimulate economic growth. A move towards greater fiscal discipline could potentially create room for the Bank of Japan (BoJ) to continue advancing its policy normalization agenda. Against a backdrop of declining risk appetite, the yen has gained support as a safe-haven currency, thereby limiting significant upward movement for the currency pair.
For the US dollar, despite strong January non-farm payrolls data which led markets to scale back bets on a March interest rate cut, the dollar's overall performance remained weak. Current market pricing indicates that investors still anticipate at least two 25-basis-point rate cuts by 2026. Concurrently, discussions surrounding the Federal Reserve’s (Fed) policy independence have also somewhat dampened bullish sentiment toward the dollar. Many market participants are choosing to remain on the sidelines ahead of the release of the latest US inflation data.
The upcoming Consumer Price Index (CPI) report is expected to provide crucial clues regarding the future path of interest rates. Should inflation show signs of cooling, expectations for rate cuts could reignite, potentially putting further pressure on the dollar. Conversely, if inflation proves persistent, the dollar may find some short-term support. On a weekly basis, the USD/JPY pair is on track to record a notable weekly decline.
The divergence in policy expectations—with Japan gradually tightening and the US potentially shifting toward an easing cycle in the medium term—forms the core bearish narrative for the pair over the intermediate horizon. From a technical perspective on the daily chart, USD/JPY has retreated from recent highs, breaking below the support of a short-term upward trendline and establishing a temporary low around 152.30. The current rebound is viewed as a technical correction rather than a reversal of the prevailing trend.
Key support below lies in the 152.00 area; a decisive break below this level could open the door for a further test of the 151.20 zone, which corresponds to the lower boundary of a previous consolidation range. Should bearish momentum persist, a retreat toward the key psychological level of 150.00 remains a possibility. Immediate resistance is situated near 153.50, followed by the 154.20 region. A sustained move back above 154.00 would be necessary to signal a potential reversal of the current weak structure.
Momentum indicators reinforce this outlook: the Relative Strength Index (RSI) remains below 50, indicating bearish dominance, while the MACD histogram continues to operate in negative territory, suggesting the medium-term downtrend is not yet complete. Although there is room for a short-term technical rebound, the overall structure favors a gradual, oscillating decline.
The primary driver for USD/JPY has shifted from reliance on individual data points to the broader interplay of policy trajectories. Should Japan continue on its path toward policy normalization while the US enters an easing cycle around 2026, the interest rate differential advantage would gradually narrow, applying structural pressure on the pair. In the near term, inflation data will dictate the dollar's direction; over the medium term, however, policy divergence will be the key trend determinant. Against a backdrop of shifting interest rate expectations, the currency pair faces risks of further depreciation.