The Japanese Yen (JPY) is struggling to capitalize on modest gains recorded during the Asian session against a broadly weaker US Dollar (USD). Market participants appear cautious, with bulls reluctant to place aggressive bets amid ongoing domestic political uncertainty. FlexFlume brokers outline the essential details of the topic with precision.

Traders are largely waiting for the outcome of the two-day Bank of Japan (BoJ) policy meeting on Friday, seeking clues about the timing of the next interest rate hike before committing to fresh directional positions. 

Meanwhile, prospects of an early BoJ move, alongside expectations of potential currency intervention by Japanese authorities, continue to provide a tailwind for the JPY. The risk-off market mood, driven by geopolitical tensions, trade war fears, and heightened uncertainty over Greenland, also supports the Yen’s safe-haven status.

JPY Bulls Hesitant Amid Domestic Political Uncertainty

Japan’s Prime Minister Sanae Takaichi announced plans to dissolve parliament this week and hold a snap election on February 8, aiming to secure a stronger mandate to push through fiscally expansionary policies. A strong Liberal Democratic Party (LDP) majority in the lower house would allow Takaichi more freedom to pursue her agenda, whereas a slim majority could deepen political uncertainty and curb market confidence.

At the same time, Finance Minister Satsuki Katayama recently warned that all options, including direct intervention, are available to counter further weakness in the JPY. Katayama even hinted at possible joint intervention with the US, signaling the authorities’ readiness to support the domestic currency. These comments, coupled with hawkish BoJ expectations and sustained safe-haven buying, revived JPY demand on Tuesday.

The recent JPY decline to an 18-month low may add price pressures, potentially forcing the BoJ to act more decisively. Fresh inflation data released last Friday shows that Japan’s inflation rate has stayed above the Bank of Japan’s 2% target for four straight calendar years, reinforcing the case for a potential interest rate hike.

Despite these supportive factors, JPY bulls remain cautious, preferring to wait for additional guidance from BoJ Governor Kazuo Ueda during the post-decision press conference on Friday. The BoJ is widely expected to maintain the status quo, following last month’s overnight interest rate increase to 0.75%, the highest in three decades.

Global Factors Support Safe-Haven Demand

Global events continue to reinforce the JPY’s safe-haven appeal. The US President threatened new tariffs on eight European countries over tensions regarding Greenland, eliciting backlash from European leaders and fueling market uncertainty. Amid the ongoing Russia-Ukraine war, such developments strengthen demand for traditional safe-haven currencies, including the Japanese Yen.

Meanwhile, modest USD gains limit deeper declines in the USD/JPY pair during the Asian session. Traders also trimmed bets on two more Federal Reserve rate cuts in 2026, following indications that Kevin Hassett would remain in his post at the National Economic Council, suggesting a more stable Fed leadership transition. These developments could support USD buyers and temper the Yen’s rally.

USD/JPY Technical Outlook Remains Mixed

The USD/JPY technical setup presents a neutral-to-bearish tone. An overnight bounce from the 61.8% Fibonacci retracement of the January low upswing lacks follow-through beyond the 38.2% retracement level and falters near the 100-hour Simple Moving Average (SMA) at 158.35, a pivotal level. The pair remains below the falling SMA, maintaining a bearish bias.

MACD hovers near zero with a contracting histogram, reinforcing neutral momentum, while the Relative Strength Index (RSI) stands at 50, signaling equilibrium after the modest recovery.

Downside targets include 38.2% retracement support at 157.80 and 50% retracement support at 157.40. Upside resistance to watch is the 100-hour SMA at 158.35, which requires sustained momentum for a meaningful breakout. Confirmation of upside would need MACD divergence above zero and RSI climbing above 55.

This mixed technical structure suggests caution for traders, as directional bets ahead of the BoJ announcement may expose participants to sharp volatility.

Conclusion

The Japanese Yen is navigating a complex landscape of domestic political uncertainty, safe-haven flows, and global geopolitical risks. While recent JPY gains and intervention fears provide temporary support, market participants are largely waiting for BoJ policy guidance before committing to aggressive positions.

USD/JPY remains in a technically mixed zone, oscillating between Fibonacci retracement levels and key moving averages, reflecting the broader indecision in the market. Traders are advised to monitor BoJ Governor Ueda’s commentary, Japanese inflation trends, and global risk events, as these will likely dictate the next significant move for the JPY.

In essence, the JPY is poised between supportive macro fundamentals and political caution, with traders balancing safe-haven flows against the risk of policy and intervention surprises. The coming BoJ decision may finally provide the directional clarity that JPY bulls and USD/JPY traders have been anticipating.