During Wednesday's Asian trading session, the Japanese yen retreated against most major currencies, moving away from the near three-month highs it had recently touched. Growing market concerns about Japan's fiscal sustainability, combined with political uncertainty ahead of the impending snap election, have diminished the yen's appeal as a traditional safe-haven asset. Japanese Prime Minister Sanae Takaichi's proposed expansionary fiscal plan has become a central market focus. Her campaign pledges include abolishing the sales tax on food within the next two years, accompanied by more aggressive fiscal spending policies. Given that Japan's government debt has exceeded 200% of its GDP for many consecutive years, these plans are interpreted by the market as potentially worsening the fiscal situation further, thereby exerting medium-term pressure on the yen.

Concurrently, the minutes from the Bank of Japan's December policy meeting revealed that policymakers have a clearer judgment of a moderate economic recovery and increased confidence in the sustainability of a virtuous wage-price cycle. This assessment provides a basis for continuing the path of monetary policy normalization, with several members expressing the necessity for further interest rate hikes at an appropriate time. However, some officials also cautioned that the pace of rate increases must be carefully considered to avoid the adverse impact of a weak yen on inflation expectations. Despite the central bank's relatively hawkish stance, the market reaction has been restrained, indicating that the current yen movement is more influenced by fiscal and political factors than by monetary policy signals alone. Improved risk appetite has also weakened the demand for safe-haven allocations into the yen, putting pressure on it during the Asian session. On the dollar front, the U.S. dollar index experienced a technical rebound after hitting multi-year lows, as traders opted to partially close out short positions ahead of the Federal Reserve's interest rate decision. Nevertheless, the market widely anticipates that the Fed still has room for at least two more rate cuts within 2026. Coupled with concerns over the Fed's independence and U.S. policy uncertainty, the upside for the dollar's rebound remains limited.

From a technical perspective, the USD/JPY pair effectively broke below the 100-day moving average during its recent decline, a move seen as a significant signal of short-term trend weakness. The price currently trades below this key moving average support, keeping the overall technical bias bearish, even though the larger-scale trend has not completely reversed. Momentum indicators further reinforce the bearish outlook. The MACD indicator is below the zero line, with its signal lines maintaining a bearish crossover, and the negative histogram continues to expand, indicating that downward momentum is still accumulating. The Relative Strength Index (RSI) has dipped close to the oversold territory near 30. This suggests that short-term selling pressure has been partially released, opening the possibility for a technical rebound or a consolidation phase, but it does not necessarily indicate a trend reversal.

Analyzing the retracement structure, if the decline continues, the retracement support near 151.90 will become the primary defensive level for the market to watch. A decisive break below this level would likely expose the medium-term support zone beneath it, risking a further extension of the downward move. Conversely, if the pair stages a rebound, the ability to firmly reclaim a position above the 100-day moving average will be a key condition for judging whether bearish pressure is easing. Until then, any rebound is more likely to be considered a corrective move rather than a sustained trend recovery. Overall, the USD/JPY is currently in a verification phase following a trend shift to weakness; while there is short-term oversold repair demand, the technical structure does not yet support a clear reversal.

Editor's View: The complexity of the current yen movement lies in the coexistence of both bullish and bearish factors, which have yet to form a unified directional force. The Bank of Japan's gradually hawkish stance should theoretically provide medium to long-term support for the yen. However, fiscal expansion expectations and political uncertainty are diluting this positive effect, leading to a clear divergence in market confidence towards the yen. In the short term, the USD/JPY pair is more likely to experience repeated fluctuations within a weak structure, with directional choices remaining highly dependent on the Federal Reserve's policy signals and changes in global risk sentiment. If the Fed continues to signal a relatively accommodative stance while the Bank of Japan maintains its policy normalization path, the yen still possesses room for a medium-term recovery. However, until the fiscal and political issues are resolved, the yen's rebound path is expected to be choppy and protracted.