USD/JPY rose on Tuesday as the Yen weakened. Reports said Prime Minister Sanae Takaichi urged caution about further Bank of Japan rate hikes during a meeting with Governor Kazuo Ueda last week. After the initial move higher, the pair struggled to extend gains as the US Dollar pulled back from its intraday highs. USD/JPY traded near 155.70 after topping at 156.28, up about 0.64%. The daily chart shows price back above the 100-day simple moving average (SMA) near 155.10. The 50-day SMA near 156.00 is acting as resistance.

Technical Indicators Overview

The Relative Strength Index (RSI) has rebounded toward 53 after flirting with oversold levels earlier this month. Average True Range (ATR) is near 1.30, which suggests volatility is elevated but stable. Support is at the 100-day SMA around 155.10. A break below that level could open the door to 154.00. Below 154.00, the 152.00 area is the next key zone. On the upside, a move above the 50-day SMA could target 157.00 to 157.50. The Yen is influenced by several factors, including Japan’s economic outlook, Bank of Japan policy, the Japan–US yield gap, and overall risk sentiment. The BoJ kept policy very loose from 2013 to 2024, then began to unwind it in 2024. This shift came as other central banks started cutting rates, which helped narrow the 10-year US–Japan bond yield spread. The BoJ has occasionally stepped in to influence the Yen, but it does so infrequently due to political sensitivity with major trading partners. The Yen is also often seen as a safe-haven currency when markets are under stress.

Policy Divergence And Market Drivers

Since early 2025, Japanese officials have signaled caution about aggressive rate hikes, and that stance has largely held. The Bank of Japan has delivered only two small 15-basis-point hikes since then, leaving the policy gap with the US relatively wide. This has helped USD/JPY trend higher, reaching around 162.50. Recent data this month showed Japan’s core inflation unexpectedly fell to 1.8%, below the BoJ’s 2% target. That reduces the urgency for more tightening. By contrast, the January 2026 U.S. Non-Farm Payrolls report was strong at 210,000, supporting the Federal Reserve’s decision to pause rate cuts. Together, these factors suggest the pair could keep grinding higher. For derivatives traders, this mix of steady upward momentum and low volatility may favor long-dated call options. One-month USD/JPY implied volatility is near multi-year lows around 6.5%, making upside exposure relatively inexpensive. There has been interest in strikes near 165.00 for options expiring in three to six months. Still, intervention risk remains a key concern. Japanese authorities have warned against “excessive moves,” especially above 160.00. To reduce this risk, traders could consider call spreads to limit upside while lowering upfront cost, or buy inexpensive out-of-the-money puts to hedge against a sharp reversal. Past interventions, such as in 2022 and 2024, tended to follow fast spikes in the exchange rate rather than a slow, steady rise. Create your live VT Markets account and start trading now.

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