As we head into the Friday Asian trading session, the Japanese Yen is under some serious pressure. The USD/JPY is continuing to give further weakness signals. Yet the recent episodic domestic political uncertainty and growing fears about Japan’s fiscal solvency have combined to spark this recent downturn. In Asia, participants are trying to handicap the outcome of a two-day policy meeting by the Bank of Japan (BoJ). As such, this meeting has the potential to determine where both the domestic and global currency will go in this debate.
Meanwhile, the USD/JPY in particular has still shown a dark undertone as the state of politics in Japan is coming under scrutiny. The nation is already grappling with long-term challenges that will complicate our fiscal situation. Speculators continue to aggressively re-position as they focus on the BoJ’s next move. At the end of last year, the central bank increased the overnight interest rate to 0.75%. In the next review, most observers are looking for the bank to hold this rate steady. The agreement among economists is that it will remain stable at this level, with no big shifts expected.
The next scheduled release from the Bank of Japan is set for January 23, 2026, at 03:00. The irregular and unpredictable nature of these releases only adds to the speculation and uncertainty. This is particularly the case when it comes to signaling the future path of monetary policy. This change, constant throughout the BoJ’s actions, has only worsened the pressures acting on the Yen.
First technical analysis indicates that the first major support for USD/JPY is around the lower channel’s bound currently at 157.96. A breakdown of this floor would be taken as a sign of downside risks to the currency pair. USD/JPY’s 100-period Simple Moving Average (SMA) is climbing at 158.16. This level is nearby support and indicates an interesting potential bottom of resilience.
Economic indicators continue to add to undercurrents for the Japanese Yen. The headline National Consumer Price Index (CPI) in Japan has fallen off a cliff. It plummeted from a year-on-year rate of 2.9% in November to just 2.1% in December. Plus, when removing the price of perishable food from the equation, the CPI came in at 2.4%, a decline from 3.0% in November. These numbers represent serious economic headwinds that are likely to be weighing on the BoJ’s decisionmaking.
However, despite these pressures, all indicators aren’t stacked against the rising Japanese economic landscape. In January, the S&P Global flash manufacturing Purchasing Managers’ Index (PMI) jumped to 51.5. This accomplishment marks its loftiest point since August 2024. This increase could be a sign that the manufacturing sector is beginning to recover. Over the long term, this expansion would strengthen the Yen.
All market participants are chewing over each of these statements and their implications. They too are very much cognizant of the rising channel from 157.35 that underlies the uptrend in USD/JPY. Potential resistance levels are marked around the 158.91 level, forming a key battleground area for traders as they continue to chart a course through this volatile market landscape.