The Japanese yen attracted some bargain-hunting during Friday's Asian trading session, temporarily halting its recent consecutive declines. The U.S. dollar had previously touched a fresh two-week high against the yen, but selling pressure on the yen eased as risk sentiment shifted and market focus increased on the potential for joint Japan-U.S. intervention.
A phase of cooling global risk appetite served as a key factor supporting the yen. Overnight pressure on the technology sector and rising market volatility enhanced the appeal of the yen as a traditional safe-haven currency.
Simultaneously, persistent market expectations for a hawkish shift in the Bank of Japan's policy outlook also provided support for the yen. The latest data showed Japan's household spending for December 2025 fell 2.6% year-on-year, marking a significant pullback after a substantial increase the previous month, highlighting the squeeze that high inflation is putting on consumer activity.
This outcome reinforced market expectations that the Bank of Japan will accelerate policy normalization and potentially raise interest rates sooner. The summary of opinions from the BOJ's January meeting, released previously, indicated that policymakers had discussed how a weak yen was increasing inflationary pressures and viewed the timing for further rate hikes as reasonable in the future.
However, the sustainability of the yen's rebound faces constraints. Concerns about Japan's fiscal situation and upcoming political events are causing some investors to remain cautious about chasing the yen higher.
With Japan approaching a snap election for the lower house, where the ruling party is expected to secure a strong position, market worries are growing that more aggressive fiscal stimulus could further burden public finances. This limits the yen's medium-term upside potential.
On the U.S. dollar side, a recent series of soft U.S. employment figures has strengthened market expectations for future Federal Reserve rate cuts. However, the momentum from the dollar's rebound from multi-year lows has not completely dissipated.
Markets still anticipate room for further Fed rate cuts in 2026, which is somewhat curbing sustained dollar strength and has contributed to a slight pullback in USD/JPY from levels above 157.00.
Looking ahead, traders will focus on the upcoming University of Michigan Consumer Sentiment Index and inflation expectation data, while closely monitoring speeches from Federal Reserve officials. Nevertheless, overall market sentiment is likely to remain cautious until Japan's significant political event concludes, meaning data-induced volatility may be relatively limited.
From a technical perspective, USD/JPY previously broke effectively above the 156.50 level and stabilized above the 200-period moving average on the 4-hour chart, confirming a technical structure where short-term bulls are in control.
This moving average continues its slow ascent, with the price holding above it, indicating the overall trend still favors the bulls, though upward momentum has slowed. Regarding momentum indicators, the MACD shows signs of a bearish crossover near the zero line, with the histogram gradually turning negative and expanding, suggesting near-term bullish momentum is waning.
The RSI has retreated to around 63, moving out of overbought territory but remaining above 50, indicating that demand has not entirely vanished. If the pair can continue to hold support around 156.50, it retains the potential to retest resistance near 157.00 and above.
Conversely, a decisive break below the support of the 200-period moving average would signal a shift towards a corrective phase, with downside targets potentially指向 155.50 or lower.
The yen's trajectory is currently influenced by a tug-of-war between multiple factors. On one hand, the Bank of Japan's gradual shift towards policy normalization, combined with a resurgence in safe-haven demand, provides periodic support for the yen.
On the other hand, Japan's fiscal and political uncertainties, against a backdrop where the U.S. dollar has not yet fully weakened, make a sustained, trend-driven rebound for the yen difficult. Until key political events and policy signals become clearer, USD/JPY is more likely to maintain a range-bound pattern at elevated levels, with short-term fluctuations primarily driven by changes in risk sentiment and policy expectations.