USD/JPY: Policy focus tempers safe haven appeal – DBS

DBS's Chang Wei Liang note USD/JPY has moved above 155 on broad Dollar strength, even as geopolitical risks could support the Japanese Yen as a safe haven. Japan’s FY26 budget debate and Prime Minister Takaichi’s proposal to suspend the consumption tax on food are seen as key for JPY direction. The IMF’s guidance on tax policy and BOJ rate hikes may delay sustained JPY strength.

Fiscal debate and BOJ path guide Yen

"US-Iran tensions have re-escalated, with Trump warning of a strike on Iran in the next 10 days without a deal, and Iran threatening that all bases and assets of hostile forces would be legitimate targets if attacked."

"CHF and JPY could see safe haven bids if there are risks of a sustained conflict in the Middle East."

"Japan’s FY26 budget will be deliberated soon, and PM Takaichi said on Wednesday that she will accelerate talks on suspending the consumption tax on food for two years."

"JPY strength could await more fiscal policy clarity, with the IMF now urging Japan to avoid reducing the consumption tax in view of an expected rise in debt servicing and welfare costs."

"It also expects the BOJ to raise its policy rate twice this year, seeing a neutral rate of 1.5% for Japan."

"Japan reported today that headline inflation has eased to 1.5% y/y for Jan (Dec:2.1%), but core-core CPI inflation remains elevated at 2.6% y/y, suggesting that broader price pressures have not dissipated."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)