Japanese Yen edges higher amid hawkish BoJ; fiscal and political risks cap gains

• Japanese Yen attracts some dip-buyers on Thursday, though it lacks follow-through.
• The BoJ’s hawkish stance and intervention speculation lend some support to the JPY.
• Concerns about Japan’s fiscal health and political uncertainty hold back the JPY bulls.

The Japanese Yen (JPY) regains some positive traction against a broadly weaker US Dollar (USD) during the Asian session on Thursday and reverses a part of the previous day's retracement slide from a nearly three-month low. Speculation that Japanese authorities would step in to stem further weakness in the domestic currency and the Bank of Japan's (BoJ) hawkish stance turned out to be key factors underpinning the JPY. The USD, on the other hand, remains close to a four-year low, touched on Tuesday, amid bets for further policy easing by the US Federal Reserve (Fed), and exerts some downward pressure on the USD/JPY pair.

The JPY bulls, however, seem hesitant amid concerns about Japan's fiscal health on the back of Prime Minister Sanae Takaichi's aggressive spending and tax cut plans. Furthermore, political uncertainty ahead of a snap election on February 8 and a generally positive risk tone contribute to capping gains for the safe-haven JPY. This, in turn, assists the USD/JPY pair to rebound around 50 pips from the daily low as traders now look forward to the release of the US Weekly Initial Jobless Claims for a fresh impetus. The market attention would then shift to the latest consumer inflation figures from Japan's capital city, Tokyo, due on Friday.

Japanese Yen bulls seem hesitant as fiscal concerns and political uncertainty offset hawkish BoJ

• The New York Federal Reserve's rate checks on the USD/JPY pair last Friday, following a similar call from Japan’s Ministry of Finance, fueled speculation that a coordinated US-Japanese intervention to strengthen the Japanese Yen might be imminent.
• Moreover, Japan's Prime Minister Sanae Takaichi warned on Sunday that officials stand ready to take necessary steps against speculative and highly abnormal market moves, reinforcing expectations that authorities would step in to stem JPY weakness.
• Meanwhile, the Bank of Japan maintained short-term interest rates at 0.75% last week, while raising its economic and inflation forecasts for the 2026 fiscal year. The central bank also signaled its readiness to continue hiking still-low borrowing costs.
• The JPY bulls, however, seem reluctant amid concerns about the long-term sustainability of Japan’s debt levels, especially after PM Takaichi unveiled plans to pause the country’s consumption tax if her Liberal Democratic Party wins the February 8 vote.
• The US Dollar, on the other hand, struggles to capitalize on the previous day's modest recovery from a four-year trough amid economic and policy risks linked to US President Donald Trump's decisions, and dovish Federal Reserve expectations.
• As was expected, the Fed held rates steady at the end of a two-day meeting on Wednesday – its first pause after three cuts last year. However, Governors Stephen Miran and Christopher Waller dissented in favor of a 25 basis point rate reduction.
• Nevertheless, investors seem convinced that the Fed will maintain the status quo through the end of this quarter and possibly until Chair Jerome Powell's tenure ends in May, though they are still pricing in two more interest rate reductions in 2026.
• Furthermore, a criminal investigation of Powell by the Department of Justice and an evolving effort to fire Fed Governor Lisa Cook put the focus on the central bank's independence, which fails to assist the USD to attract any meaningful buyers.
• Trump predicted earlier this week that rates would decline after the new chair takes over. US Treasury Secretary Scott Bessent said on Wednesday that Trump's Fed chair pick may come in weeks or so, keeping the USD bulls on the defensive.
• Thursday's US economic docket features the release of the usual Weekly Initial Jobless Claims. The data could provide some impetus later during the North American session, though the focus will remain on the Tokyo CPI report, due on Friday.

USD/JPY needs to find acceptance above 100-day SMA for any further recovery

The overnight failure to find acceptance above the 154.00 mark and rejection near the 100-day Simple Moving Average (SMA) favors the USD/JPY bears. The said handle also nears a horizontal support breakpoint and should act as a key pivotal point for short-term traders. The Moving Average Convergence Divergence (MACD) line sits below the Signal line and below zero. The histogram widens on the negative side, reinforcing downside momentum. The Relative Strength Index (RSI) at 33 signals subdued momentum near oversold.

Meanwhile, the 100-day SMA continues to rise, underscoring the broader uptrend, though the USD/JPY pair holds beneath it and maintains a bearish near-term bias. With price capped under the rising average, rebounds remain limited and the path of least resistance points lower in the near term. A daily close back above the average could alleviate pressure and shift the tone, but a persistently negative MACD and an RSI anchored in the low 30s would keep sellers in control.

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