USD/JPY Price Forecast - USDJPY=X Eyes 160 as Japan’s Fiscal Shock Overpowers Classic Safe-Haven Flows

USD/JPY: Politics, Fiscal Shock And A Currency Fighting Two Narrents

USD/JPY is trading in a structurally bullish zone despite a weak US Dollar and a clear risk-off backdrop. Spot has oscillated between roughly 157.50 and the high-159s, after already printing a year-to-date high near 159.45 and sitting just below the psychologically critical 160.00 band where authorities intervened around 160.23 in 2024. At the same time the Dollar Index has slipped toward 98.28, US indices are under pressure, and volatility has picked up, with the S&P 500 off about 1.6% and the VIX jumping more than 20%. Under normal conditions that combination would support the Yen. Instead, USD/JPY remains elevated because the dominant driver is no longer global risk sentiment or classic rate differentials, but Japan’s domestic fiscal trajectory and the political shock that has just hit Tokyo.

Snap Election, Food Tax Cuts And JGB Turmoil Fuel USD/JPY Upside

The immediate catalyst for the latest leg higher in USD/JPY is the decision by Prime Minister Sanae Takaichi to dissolve parliament and call a snap lower-house election for 8 February. Alongside the election announcement came a two-year suspension of the 8% food consumption tax, with opposition parties racing to outbid the government by floating even more aggressive cuts, including full abolition funded via alternative revenues. Regardless of which proposal wins, the direction is clear: fiscal policy is turning more expansionary, not less. The bond market’s reaction was brutal. The 40-year JGB yield hit record highs, and the 30-year yield jumped about 25 basis points in one session, one of the sharpest moves in years. The entire curve repriced, with the 2s10s spread steepening beyond 100 basis points as investors demanded a higher term premium to hold long-dated Japanese debt. Inflation expectations have moved up toward roughly 1.9%, and the market is increasingly concerned that repeated populist measures will worsen an already fragile fiscal position. That cocktail of higher long-end yields, wider curve and fiscal uncertainty is toxic for the Yen and supportive for USD/JPY because it undermines confidence in Japan’s long-run policy mix just as global investors are still using the Yen as low-yielding funding for carry trades into higher-return assets abroad.

BoJ At 0.75%: Gradual Tightening Versus Loose Budgets Keeps Pressure On The Yen

On the monetary side, the Bank of Japan has already lifted its overnight rate to about 0.75%, the highest level in thirty years, and core inflation has averaged above the 2% target for four consecutive calendar years. Some policymakers are openly discussing scope to hike again as early as April, earlier than many had expected. Markets are now focused on the BoJ decision this Friday, where the headline rate is widely expected to remain unchanged at 0.75%. The real event risk lies in the statement and Governor Ueda’s press conference: any hint that the next hike is getting closer, or that tolerance for JGB volatility is shrinking, would matter far more than a steady policy rate. Yet despite this hawkish tilt relative to Japan’s past, the BoJ is still moving cautiously and incrementally. That slow normalization contrasts sharply with the aggressive fiscal stance. Put simply, fiscal and monetary policy are pulling in opposite directions. The government is stimulating demand and pushing inflation expectations up, while the BoJ is only very slowly removing accommodation. Real rates remain deeply negative, and with the curve steepening on fiscal worries, the net effect is still Yen-negative. That is why USD/JPY can grind higher even with markets pricing a modest chance of another hike around April and with inflation already above target. As long as the BoJ avoids sending a clear signal that it is ready to lean hard against Yen weakness, traders will continue to see the currency as a funding vehicle, not a destination.

Safe-Haven Flows, Greenland Tariffs And Why JPY Is Not Behaving Like Classic JPY

The broader macro backdrop would normally be a textbook environment for Yen strength. Former President Trump has threatened new 10% tariffs on imports from eight European countries starting 1 February, with the possibility of escalation later, tied to tensions over Greenland. European officials are discussing retaliation worth roughly €93 billion. Gold has surged to record territory near 4,760 dollars per ounce. Bitcoin has dropped below 91,000, and US equity indices are under clear pressure, with the Dow down more than 600 points and the S&P 500 lower by roughly 110 points on the day. The Dollar itself is being sold on a “Sell America” narrative, with the Dollar Index sliding almost 1% and European currencies such as the euro pushing higher. Fixed-income volatility is elevated, and risk assets are wobbling, exactly the kind of risk-off environment that normally sends capital into traditional havens like the Yen and Swiss franc. There are indeed pockets where the Yen is acting defensively. A daily performance heat map shows JPY posting intraday gains versus the US Dollar, with JPY up roughly 0.19% against USD at one point, and also advancing against several other majors. But those moves are marginal when set against the bigger picture. USD/JPY is still holding near the upper end of its multi-month range, not collapsing. The reason is that domestic Japanese factors are overwhelming global risk dynamics. Investors see the fiscal path and steepening JGB curve as more important than temporary swings in risk appetite, especially because safe-haven demand can now go into gold or high-grade European assets, while the Yen is tied to a government that is openly loosening its purse strings on the eve of an election.

Yield Curve Steepening, Carry Flows And Structural Support For USD/JPY

The steepening of the JGB curve is not just a bond-market technical. It signals that investors are questioning the long-term sustainability of Japan’s fiscal path and are demanding compensation for future inflation and potential supply pressure. Long-dated yields moving sharply higher while short-dated yields are anchored around 0.75% sends a clear message that markets expect more price pressure and greater issuance risk over time. That erosion of credibility is Yen-negative even if in the very short term higher yields could attract some marginal foreign demand. On top of that, the global carry trade remains aligned against JPY. With US policy rates still far above Japanese rates, and many other central banks offering yields that look attractive compared with 0.75%, the Yen continues to serve as cheap funding. Portfolio and hedge-fund strategies that borrow in Yen to buy higher-yielding assets in the US, Europe or emerging markets are still in place. Even on a day when the Dollar is broadly weak and equities are under pressure, those structural flows are not unwound unless volatility spikes to the point where carry becomes intolerable. For now, that threshold has not been reached. As a result, the path of least resistance for USD/JPY remains higher as long as there is no decisive change in BoJ communication or a shock intervention that signals a hard line on currency weakness.

Short-Term Price Action: USD/JPY Holds A Bullish Bias Above The 157.00 Pivot

The near-term price structure in USD/JPY reflects this fundamental tension. On intraday charts, the pair has bounced from the 61.8% Fibonacci retracement of the January upswing around 157.40 after briefly probing that zone, and it is trading between that support and the 38.2% retracement, which sits just below the 100-hour Simple Moving Average near 158.35. That hourly 100-SMA around 158.35 is a key pivot. As long as spot remains below that falling average, short-term momentum is capped and the intraday bias leans slightly bearish within the day, but the structure is not decisively negative. The MACD on the hourly timeframe is hovering around the zero line with the histogram flattening, pointing to a neutral momentum backdrop rather than a strong directional signal. The RSI around 50 underscores that the market is in balance after the latest pullback from the highs. On the downside, a clean break below the 38.2% retracement would refocus attention on the 50% retracement near 157.80 and then the 61.8% level at 157.40. Those areas coincide with prior price reaction zones and define the first layer of demand. If those levels fail, spot would then look toward the broader support band between roughly 157.00 and 156.70, which has already caught declines twice this year. Further down, a deeper correction could extend toward 156.00, where prior horizontal support and the rising medium-term trend line begin to converge.

Medium-Term Technical Map: Channel Resistance, Intervention Memories And Support Clusters

On the daily chart, USD/JPY is consolidating inside a descending channel that has formed after the late-2025 advance. The upper boundary of that channel currently lies in the 158.80–159.00 zone, which matches with recent intraday highs and defines a critical cap. Price action has repeatedly failed to break cleanly above this band, reinforcing it as the first significant resistance zone. Just above sits the year-to-date high around 159.45. A sustained daily close above 159.45 would be a clear bullish breakout and would put the 160.00–160.50 area in play, a zone that is not only psychologically important but also coincides with the region where authorities stepped in around 160.23 in 2024. That prior intervention level is etched into trader memory and will be treated as a red line; if spot trades back into that area, expectations of official action will ramp up. On the downside, the November 2025 high around 157.90 has already acted as a pivot. Monday’s price pattern produced a bullish pin bar from just under that level, warning of short-term upside risk if follow-through appears. Beneath 157.90, the market is watching 157.50 as an important shelf, given that price has bounced from that approximate level twice this year. Below that, the confluence of horizontal support and an uptrend line from October 2025 around 157.00, together with the 50-day moving average just below, mark a more strategic support cluster. As long as these layers hold, the broader structure is best described as a controlled pullback inside an uptrend rather than a reversal.

Event Path: BoJ Decision, Election Dynamics And Scenario Grid For USD/JPY

All of these technical levels sit on top of a heavy event calendar that will decide whether USD/JPY breaks higher or corrects. The BoJ decision on Friday is the immediate catalyst. If the central bank leans hawkish in tone, even while leaving the rate at 0.75%, and signals that a follow-up hike as early as April is realistic, markets would likely read that as the start of a more assertive normalization. That could trigger unwinding of some carry positions and send USD/JPY lower toward the 155.50 area flagged by some traders as the logical downside if carry is partially reversed and real rates are perceived as improving. In that scenario, the 157.00–156.70 band and then 156.00 would be tested on the way down. By contrast, if the message is neutral or mildly dovish, with no fresh guidance on timing and a focus on patience despite inflation above target, the policy divergence between cautious monetary tightening and aggressive fiscal stimulus will remain in place. That would keep the Yen under pressure and open the way for a retest of 159.00, then 159.45, and potentially the 160.00–160.50 intervention zone. A third possibility is that the BoJ deliberately avoids strong forward guidance and markets shift their attention back to the election campaign, bond auctions and global tariff headlines. In that case, USD/JPY could continue to trade in a wide range, with 157.00–156.70 acting as the lower bound and 159.00–159.50 as the upper bound, while traders wait for the next shock from politics or policy.

Global “Sell America” Narrative Versus Japan’s Domestic Story In Shaping USD/JPY

It is important to separate the global Dollar story from the Yen-specific drivers. The Dollar is weakening more broadly as investors price a slower US economy, growing political risk around tariffs and Greenland, and the potential for a change in Fed leadership that could accelerate easing in 2026. Markets have already trimmed expectations for additional Fed cuts this year after signals that National Economic Council director Kevin Hassett may not be tapped as Powell’s successor, but the structural bias for the Dollar remains gently downward. At the same time, European currencies and gold are benefitting from capital flows that see the US as less attractive at the margin. However, USD/JPY is not just a Dollar chart; it is a spread between two stories. On one side is a Dollar dealing with trade war headlines and softer growth; on the other is a Yen facing a snap election, rising long-term yields, larger fiscal deficits and a central bank that is still cautious. When those narratives collide, the domestic Japanese factors are currently stronger. This explains why the Yen can be the “strongest” currency on an intraday heat map versus USD on a given day while USD/JPY remains close to multi-month highs: the small intraday JPY gains are tactical, but the structural picture still favors weakness.

Verdict On USD/JPY: Buy, But Only With Respect For 160.00 And Event Risk

Putting fundamentals and technicals together, USD/JPY still leans bullish. Fiscal expansion, a steepening JGB curve, deeply negative real rates and persistent carry demand all argue that the Yen remains structurally vulnerable. Technically, the pair is holding above key supports at 157.40, 157.00–156.70 and 156.00, while repeatedly probing resistance into 158.80–159.00 and keeping the door open for a retest of 159.45 and potentially the 160.00–160.50 intervention band. Momentum indicators on the daily timeframe, such as RSI and MACD, have cooled from overbought but remain above neutral, consistent with a consolidation inside an uptrend rather than a top. At the same time, the risk around the BoJ decision and the February election is significant, and the memory of past intervention near 160.23 is real. For that reason, the stance on USD/JPY is Buy, but only on dips and with tight risk control. The more attractive tactical zones for initiating long exposure sit in the 157.80–157.40 band and, if tested, the 157.00–156.70 region, with upside targets initially toward 159.00 and 159.45 and a clear plan to step aside if the policy narrative or price action signals a break of the 156.00 area. In other words, the path of least resistance remains higher for USD/JPY, but the trade is now an event-driven Buy rather than a complacent carry, and any approach to 160.00 must assume elevated intervention risk.