• The US Dollar stable against the Japanese Yen amid a renewed wave of global risk aversion.
• Speculation surrounding a snap election in Japan weighs on political and monetary visibility.
• US tariff threats revive trade war fears and support safe-haven currencies.

USD/JPY trades around 158.10 on Monday at the time of writing, virtually unchanged on the day, after pulling back from an 18-month high reached last week. The pair lacks clear direction, caught between Japanese political factors weighing on the Japanese Yen and a more fragile global environment that supports its safe-haven appeal.

In Japan, speculation that Prime Minister Sanae Takaichi may dissolve parliament and call a snap general election in early February acts as a headwind for the Japanese Yen (JPY). Such a move would aim to cement her political authority and reinforce an expansionary fiscal stance, raising concerns about a potential deterioration in public finances in a country already burdened by high debt levels. This prospect encourages investors to remain cautious toward the Japanese Yen, especially if an electoral victory were to strengthen the government’s ability to push ahead with large-scale stimulus measures.

At the same time, several factors are helping to limit losses in the Japanese currency. Japan’s Finance Minister Satsuki Katayama recently reiterated that all options remain on the table to counter excessive currency weakness, including a direct and coordinated intervention with the United States. In addition, a Reuters report suggests that some policymakers within the Bank of Japan (BoJ) see room for an earlier-than-expected interest rate hike, potentially as soon as April. These tightening expectations help cap downside pressure on the JPY.

On the global front, risk sentiment remains fragile. US President Donald Trump reignited trade tensions by threatening to impose 10% tariffs from February 1 on imports from eight European countries opposing his Greenland-related plans. These remarks revive fears of a renewed trade war and weigh on appetite for riskier assets, which tends to support safe-haven currencies such as the Japanese Yen. Persistent geopolitical risks, including the prolonged Russia–Ukraine war and concerns surrounding Iran, further reinforce this defensive tone.

Meanwhile, the US Dollar (USD) retreats after reaching its highest level since early December. The Greenback is pressured by renewed doubts over US assets amid rising trade and geopolitical tensions, even though reduced expectations for Federal Reserve (Fed) rate cuts help limit the downside.

Investors are now turning their attention to key upcoming events, including the US Personal Consumption Expenditures (PCE) price index and the Bank of Japan’s monetary policy decision later this week, which could provide fresh directional cues for the USD/JPY pair.