USD/JPY Price Forecast: Extends Japan's weak Q4 GDP-inspired recovery to 153.25 area

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The USD/JPY pair once again shows some resilience below the 200-day Exponential Moving Average (SMA) on Monday and rebounds from the vicinity of the 38.2% Fibonacci retracement level of the April 2025 to January 2026 strong move up.

USD/JPY gains some positive traction on Monday as Japan’s weak Q4 GDP report weighs on JPY.
The divergent BoJ-Fed policy expectations keep a lid on any further appreciation for spot prices.
The mixed technical setup warrants caution for bulls and positioning for any meaningful upside.

The disappointing release of Japan's Q4 GDP print, along with a positive risk tone, undermines the safe-haven Japanese Yen (JPY). Apart from this, a modest US Dollar (USD) uptick assists the USD/JPY pair to gain some positive traction at the start of a new week and stage a goodish recovery from over a two-week low, touched last Thursday. However, the divergent Bank of Japan (BoJ)-US Federal Reserve (Fed) expectations act as a headwind for spot prices.

From a technical perspective, the USD/JPY pair holds above the rising 200-day EMA at 152.54, which keeps the broader bias underpinned. The average continues to slope upward, tempering the impact of the recent pullback. However, the Moving Average Convergence Divergence (MACD) line sits below the Signal line, with both below zero. The negative histogram is widening, suggesting sellers retain momentum. Moreover, the Relative Strength Index (RSI) at 38 remains below the midline, indicating subdued upside pressure.

Hence, any further move up is more likely to confront stiff resistance near the 23.6% retracement at 154.96, which is the first upside pivot. On the flip side, the 38.2% Fibo. retracement level stands at 152.11 and continues to offer initial support. A daily close beneath the said support would open room for a deeper pullback, while a break above 154.96 could revive the advance.

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

USD/JPY daily chart

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.