• Japanese Yen attracts fresh sellers as snap election announcement fuels fiscal worries.
• Intervention fears and sustained safe-haven buying could limit losses for the safe-haven JPY.
• A weaker USD might contribute to capping USD/JPY ahead of the BoJ decision on Friday.

The Japanese Yen (JPY) turns lower for the second consecutive day following a modest intraday uptick on Tuesday and retreats further from a one-week high, touched against a broadly weaker US Dollar (USD) the previous day. Japan's long-dated yields shot to a record high a day after Prime Minister Sanae Takaichi announced a snap election, fueling fiscal worries and weighing on the JPY. However, expectations that Japanese authorities would intervene to counter further weakness in the domestic currency could act as a tailwind for the JPY.

Apart from this, prospects for further policy tightening by the Bank of Japan (BoJ) might hold back the JPY, and the risk-off mood could offer some support to the safe-haven JPY. This, along with some follow-through US Dollar (USD) selling, might contribute to capping the upside for the USD/JPY pair. Investors might also opt to wait for the outcome of the BoJ policy meeting on Friday for more cues about the likely timing of the next interest rate hike, which, in turn, would help in determining the next leg of a directional move for the JPY.

Japanese Yen plummets as fiscal concerns trigger a broader sell-off in government bonds

• Japan's Prime Minister Sanae Takaichi said on Monday that she will dissolve parliament this week and hold a snap election on February 8, hoping for a stronger mandate to push through her ambitious fiscally expansionary policies. A strong majority for the ruling Liberal Democratic Party (LDP) in the lower house would give Takaichi more freedom to pursue her agenda, while a slim majority would deepen political uncertainty.
• Japan’s 40-year government bond yield hit a record high, while yields on shorter maturities climbed sharply as well, on worries that proposed cuts to the food sales tax could worsen the country’s fiscal position. Moreover, a fall in demand at the 20-year debt auction opened the floodgates, sending yields into uncharted territory amid a selloff in government bonds.
• Meanwhile, Japan's Finance Minister Satsuki Katayama warned last Friday that all options, including a direct intervention in the market, are available to deal with the recent weakness in the Japanese Yen. Katayama also hinted at the possibility of joint intervention with the US to support the domestic currency. This, along with hawkish Bank of Japan expectations and sustained safe-haven buying, revives the JPY demand on Tuesday.
• The recent JPY fall to an 18-month trough could add to price pressures and force the BoJ into faster action. In fact, data released last Friday showed that Japan’s inflation has averaged above the BoJ's 2% target for four straight calendar years. Furthermore, a Reuters report, citing sources, suggests that some policymakers inside the BoJ see scope to raise interest rates as early as April, sooner than markets currently expect.
• The JPY bulls, however, seem reluctant to place aggressive bets and opt to wait for more cues about the timing of the next BoJ rate hike. Hence, the focus remains glued to BoJ Governor Kazuo Ueda's comments during the post-decision press conference on Friday. The BoJ is expected to maintain the status quo at the end of a two-day meeting, after raising the overnight interest rate last month to 0.75%, or the highest in 30 years.
• US President Donald Trump threatened new tariffs against eight European countries in response to tensions over Greenland. The announcement sparked backlash from European leaders and heightened market uncertainty amid the protracted Russia-Ukraine war, boosting the traditional safe-haven JPY. The US Dollar, on the other hand, retreats further from its highest level since December 9 and weighs on the USD/JPY pair.
• Traders trimmed their bets for two more interest rate cuts by the US Federal Reserve in 2026 after Trump said that he would prefer to keep National Economic Council director Kevin Hassett in his current role. This, in turn, suggests that someone else will be tapped to succeed the outgoing Fed Chair Jerome Powell, though it does little to impress the USD.

USD/JPY bulls look to seize control above 100-hour SMA

The overnight bounce from the 61.8% Fibonacci retracement level of the upswing from the January low lacks follow-through strength beyond the 38.2% Fibonacci retracement level and falters ahead of the 100-hour Simple Moving Average (SMA). The latter is currently pegged around the 158.35 region and should act as a key pivotal point. The USD/JPY pair holds beneath this falling average, preserving a bearish bias. The Moving Average Convergence Divergence (MACD) remains near the zero line, with the histogram contracting toward flat, reinforcing a neutral tone. The Relative Strength Index (RSI) stands at 50 (neutral), indicating balance after a modest recovery.

Meanwhile, weakness below the 38.2% Fibonacci retracement level shifts focus to the 50% retracement support at 157.80, below which the USD/JPY pair could target the 61.8% retracement at 157.40. On the flip side, recovery attempts would meet initial resistance at the 100-period SMA at 158.35. A sustained move beyond would need improving momentum, with the MACD lifting away from zero and the RSI rising above 55 to strengthen the upside case.

(The technical analysis of this story was written with the help of an AI tool.)