06.02.202617:26 Forex Analysis & Reviews: USD/JPY. Analysis and Forecast

Investors remain concerned about Japan's fiscal sustainability amid expansionary fiscal initiatives by Prime Minister Sanae Takaichi. Moreover, political instability ahead of the snap election on February 8 discourages traders from taking aggressive bullish positions on the yen. At the same time, market participants remain cautious due to the risk of coordinated intervention by Japan and the United States to stabilize the yen. This, together with a shift in risk sentiment and expectations that the Bank of Japan will maintain its normalization path, has allowed the yen to snap a five-day losing streak.

The US dollar is under pressure from forecasts of further monetary policy easing by the Federal Reserve, which weighs on the USD/JPY pair. The yen remains slightly in positive territory due to expectations of tighter monetary policy by the Bank of Japan and reduced risk appetite.

New data released on Friday showed that Japanese household spending fell by 2.6% year-on-year in December 2025, following a 2.9% increase the previous month. This highlights the impact of inflation on consumption and strengthens the Bank of Japan's case for combating rising prices and raising interest rates in the near future. Earlier in the week, the summary of the Bank of Japan's January meeting revealed that policymakers discussed price pressures stemming from a weak yen. In addition, board members acknowledged the appropriateness of future rate hikes. These signals lend the yen some positive momentum.

The US dollar, by contrast, is consolidating recent gains to a two-week high and prompting traders to adjust bullish expectations for USD/JPY ahead of the snap election to the lower house of the Japanese parliament on Sunday, February 8. Sanae Takaichi's Liberal Democratic Party (LDP) is likely to secure a convincing victory, which would strengthen her influence in parliament and open the door to a more aggressive macroeconomic stimulus agenda. Markets fear that such measures could worsen Japan's already fragile fiscal position.

From the US, the Department of Labor reported on Thursday that initial jobless claims rose to 231,000 for the week ending January 31, up from 209,000 previously and above the forecast of 212,000, amid weak private-sector employment. The Job Openings and Labor Turnover Survey (JOLTS) also showed 6.542 million job openings at the end of December, compared with a revised 6.928 million a month earlier. This signals cooling labor market conditions and reinforces expectations of two Federal Reserve rate cuts in 2026. As a result, the US dollar slows its recovery from a four-year low, contributing to a pullback in USD/JPY from highs above the psychological 157.00 level reached on Thursday.

From a technical perspective, the recent breakout above 156.50, or the 20-day SMA around 156.50, was seen as a key trigger for USD/JPY bulls. Prices remain above the 20-day SMA, favoring the bullish case; however, bulls failed to hold the psychological 157.00 level. It is worth noting that oscillators on the daily chart are mixed, although the Relative Strength Index remains in positive territory. Meanwhile, the narrowing negative MACD histogram points to weakening downside pressure, which also favors bulls. A swift return of the histogram above zero would neutralize bearish sentiment.

Further resistance for the pair above the 157.00 psychological level is seen around 157.40, on the way toward the 158.00 round level. If prices fail to hold the 156.50 level, a faster decline toward the 156.00 psychological level may follow.