USD/JPY bounced from an 11-day low of 152.80 on Wednesday and traded near 153.25. Even after moving back above 153.00, it was still down more than 0.7% on the day and 2.8% on the week.
The Yen strengthened after Prime Minister Sanae Takaichi won Sunday’s election. The Nikkei climbed to record highs, and the Yen has risen nearly 3% against the US Dollar this week.
Dollar Weakened After Retail Sales
US data pressured the Dollar. December Retail Sales were flat, missing the 0.4% forecast. Core retail spending fell 0.1% in December, and November was revised down to 0.2% growth from 0.4%.
Markets are now waiting for January’s delayed US Nonfarm Payrolls report. Jobs are expected at 70K versus 50K in December. Unemployment is expected to hold at 4.4%, and annual wage growth is forecast at 3.6% versus 3.8%.
The Yen is influenced by Japan’s economic outlook, Bank of Japan policy, bond yield gaps, and overall risk sentiment. The BoJ kept policy ultra-loose from 2013 to 2024, then started to move away from it in 2024. That shift has supported the Yen.
Looking back at the sharp move in early 2025, the market’s reaction to Prime Minister Takaichi’s win set a new tone for the Yen. That first surge marked a turning point. It broke old trading ranges and created a strong bearish bias for USD/JPY. Today, with the pair trading near 142.50, the downtrend that began a year ago still looks firmly in place.
Central Bank Divergence Drives Trend
The main driver has been the Bank of Japan’s policy shift. In 2025 it was only hinted at, but now it is happening. Over the past year, the BoJ has delivered two small but important rate hikes as inflation has stayed stubborn, holding at 2.5% in last month’s data. This tightening keeps reducing the gap between Japanese rates and overseas rates, which supports the Yen.
At the same time, weaker US data from late 2024 and early 2025 pushed the Federal Reserve into an easing cycle. The latest Nonfarm Payrolls report showed 155,000 jobs, below expectations. That result supports the view that the US economy is not strong enough for the Fed to move away from its dovish stance. This gap in central bank policy remains the main force weighing on the Dollar.
This shift has sharply narrowed the yield spread between US and Japanese 10-year bonds, a key driver for the pair. US yields have dropped to around 3.7%, while Japanese government bond yields have climbed above 1.0%. That is the tightest spread in years, making the Yen more attractive to hold than it has been in over a decade.
With this backdrop, any USD/JPY strength may be seen as a chance to sell. Traders may also consider put options to target a move toward 140.00, especially ahead of upcoming inflation data from both countries. As long as this central bank policy gap remains in place, the path of least resistance for the pair still appears to be lower.
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