Japanese yen bears trimmed positions ahead of Japan’s snap election on Sunday, allowing the currency to recover modestly. Growing speculation of an imminent Bank of Japan rate hike, combined with a broader risk-off mood, has also supported the safe-haven yen. Meanwhile, the U.S. dollar paused its recent rebound from a four-year low, adding further downside pressure on USD/JPY.
The Japanese yen attracted modest buying during Asian trading on Friday, appearing to snap a five-day losing streak against the U.S. dollar after touching a two-week low in the previous session. Traders remain alert to the possibility of coordinated Japan–U.S. intervention to curb further yen weakness, while a shift in global risk sentiment and elevated market volatility have boosted demand for the currency’s safe-haven appeal. Expectations for a more hawkish Bank of Japan have also provided underlying support to the yen.
Data released earlier showed Japan’s household spending fell sharply in December, highlighting the impact of higher prices on consumer activity and reinforcing expectations that the BoJ could move toward a rate hike sooner rather than later. That said, concerns about Japan’s fiscal position and ongoing political uncertainty may limit aggressive bullish positioning in the yen. In addition, the U.S. dollar’s recent recovery from a four-year low could help cap further declines in USD/JPY as markets look ahead to Japan’s snap lower house election on February 8.
Yen finds support from hawkish BoJ outlook and improving risk sentiment
Data released earlier on Friday showed that Japan’s Household Spending fell 2.6% YoY in December 2025, reversing a 2.9% increase in the previous month. The sharp contraction highlights the drag from elevated living costs on consumption and reinforces the Bank of Japan’s resolve to tackle inflation, strengthening the case for an earlier interest rate hike.
This view is supported by the Summary of Opinions from the BoJ’s January meeting, which revealed that policymakers discussed rising price pressures stemming from a weak Japanese Yen and agreed that further rate hikes would be appropriate over time. These factors helped the JPY attract modest buying during the Asian session.
The Yen also benefited from a risk-off impulse, as Asian equities extended losses for a second straight day following a deepening selloff in global tech stocks. Meanwhile, the US Dollar paused its recent advance to a two-week high, prompting traders to trim USD/JPY long positions ahead of Japan’s snap lower house election on Sunday, February 8.
Japan’s Prime Minister Sanae Takaichi’s Liberal Democratic Party (LDP) is widely expected to secure a decisive victory, which would strengthen her control over parliament and provide greater scope to pursue aggressive pro-stimulus policies. However, markets remain concerned that expansionary fiscal plans could further strain Japan’s already fragile public finances, limiting the Yen’s upside.
From the US, data released Thursday showed that Initial Jobless Claims rose to 231K for the week ending January 31, up from 209K and above expectations of 212K, adding to weak private-sector employment data released earlier in the week. Further evidence of labor market softening came from the JOLTS report, which showed job openings falling to 6.542 million in December from a downwardly revised 6.928 million previously.
The softer labor backdrop has reinforced expectations for additional Federal Reserve easing, with markets currently pricing in two more rate cuts in 2026. This has capped the US Dollar’s rebound from a four-year low and contributed to USD/JPY pulling back modestly from the two-week high above the 157.00 level touched on Thursday.
Traders now await the preliminary Michigan Consumer Sentiment Index and inflation expectations, along with remarks from key FOMC members, for fresh directional cues later in the North American session. However, market reactions are likely to remain subdued ahead of Japan’s closely watched political event.
USD/JPY buyers remain in control after breaking above the 200-period SMA resistance on the H4 chart.
The overnight move above the 156.50 barrier, which aligns with the 200-period SMA on the 4-hour chart, marked an important catalyst for USD/JPY bulls. The gently rising SMA reflects a stable underlying uptrend, and prices remaining above it preserve a bullish tone. However, the MACD has dipped below its Signal line around the zero level, with the histogram turning negative and widening, pointing to a loss of upside momentum. Meanwhile, the RSI has retreated to 63 from overbought territory, highlighting a more tempered momentum backdrop.
As long as USD/JPY holds above the rising 200-period SMA, upside risks remain favored. A sustained break below this level would shift the focus toward a corrective pullback. From a momentum perspective, continued expansion of the negative MACD histogram would strengthen downside risks, while a swift move back above zero would negate the bearish crossover. The RSI staying above 50 continues to support the bullish case, whereas a slide toward that level would signal weakening buying interest.
Sources: Haresh Menghani
THE ETERNAL SOVEREIGN 
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