The Japanese yen slides further against the dollar as fiscal and political worries outweigh the BoJ’s hawkish stance.

• The Japanese yen stays under pressure as fiscal worries and political uncertainty outweigh stronger-than-expected data.
• Concerns over possible intervention and the BoJ’s increasingly hawkish stance may deter traders from adding new bearish yen positions.
• Rising expectations of further Fed easing weigh on the U.S. dollar and could limit upside in USD/JPY.

The Japanese yen (JPY) continues its downward trajectory against the U.S. dollar for a fourth consecutive session on Wednesday, sliding to a near two-week low during Asian trading. Persistent concerns over Japan’s fiscal position—linked to Prime Minister Sanae Takaichi’s expansionary spending agenda—remain a key drag on the currency. In addition, heightened political uncertainty ahead of the February 8 snap election further weakens sentiment toward the yen, driving USD/JPY above the 156.00 level.

At the same time, markets remain cautious amid the risk of coordinated Japan–U.S. intervention aimed at curbing excessive yen weakness. Expectations of gradual policy normalization by the Bank of Japan may also discourage traders from adding aggressive bearish positions. Meanwhile, expectations that the Federal Reserve will deliver two additional rate cuts limit U.S. dollar demand, potentially capping further upside in USD/JPY ahead of later U.S. economic data releases.

Yen sellers stay in charge as fiscal strains and political uncertainty persist.

Japan’s services sector gathered momentum at the start of 2026, with business activity expanding for a tenth straight month and at the fastest pace in nearly a year. The Jibun Bank Services PMI rose to 53.7 from 51.6 in December, coming in slightly above market expectations of 53.4. The figures point to a more sustained recovery in the services industry, which represents about 70% of Japan’s GDP.

Despite the encouraging data, market reaction was subdued as concerns over Japan’s fiscal outlook continued to weigh on sentiment. Investor unease has been amplified by Prime Minister Sanae Takaichi’s expansionary fiscal agenda, including aggressive spending plans and proposed tax cuts. As part of her campaign ahead of the February 8 snap lower house election, Takaichi has pledged to suspend the 8% consumption tax on food for two years, bringing renewed focus to Japan’s already stretched public finances and keeping the yen under pressure on Wednesday.

Meanwhile, a recent and unusual rate check by the New York Federal Reserve was interpreted as the clearest indication so far of coordination between Japanese and U.S. authorities to curb excessive yen weakness. This lowers the bar for potential intervention and could help limit further JPY losses, particularly alongside expectations of a more hawkish Bank of Japan.

The Summary of Opinions from the BoJ’s January meeting, released Monday, revealed that policymakers discussed rising inflationary pressures stemming from a weaker yen. Board members also agreed that additional rate hikes would be appropriate over time, a stance that could provide underlying support for the JPY.

On the other side, the U.S. dollar has struggled to extend last week’s rebound from a four-year low, despite support from the nomination of Kevin Warsh as the next Federal Reserve chair. Even the approval of a government funding package to end a partial shutdown failed to generate meaningful upside for the greenback.

Looking ahead, traders are awaiting the U.S. ADP employment report and the ISM Services PMI. In addition, remarks from influential FOMC members could shape near-term USD demand amid expectations for two more Fed rate cuts in 2026, with implications for the USD/JPY pair.

USD/JPY must clear the 156.50 confluence zone to reinforce bullish momentum.

Wednesday’s push above the 156.00 handle builds on the overnight breakout through the 50% retracement of the 159.13–152.06 decline, tilting the near-term bias in favor of USD/JPY bulls. The 14-period Relative Strength Index stands at 66.9, remaining below overbought territory and pointing to a solid, albeit increasingly mature, upswing.

That said, the MACD histogram, while still in positive territory, is narrowing—an early sign of waning bullish momentum. The MACD line remains above the Signal line, with both oscillating close to the zero level, underscoring a more cautious and transitional setup.

As a result, further upside is likely to face notable resistance around the 156.51 confluence, which combines the 100-period Simple Moving Average on the 4-hour chart and the 61.8% Fibonacci retracement. A sustained move above this zone would be required to reassert a constructive short-term outlook.

A decisive break could pave the way toward the 78.6% retracement at 157.62. Conversely, an inability to clear this hurdle would leave the rebound exposed to renewed downside pressure. Moreover, USD/JPY continues to trade below a downward-sloping 100-period SMA, suggesting that upside attempts may remain constrained for now.

Sources: Haresh Menghani