USD/JPY forecast: Currency Pair of the Week | 26 January, 2026

The yen gained further momentum in early European trade with traders on heightened alert for potential intervention in the FX market. The USD/JPY pair hit a low of 103.30 before bouncing slightly. While speculation has been rife about coordinated intervention by Japan and the US, there is no evidence of actual intervention yet. Nevertheless, markets are wary of such a move, although the fact the USD/JPY has eased far below the 160.00 level means there is now some breathing space for the pair before we see any actual intervention. Whether intervention will work to keep the exchange rate depressed for long enough a period, is another question. The threat thereof is what is driving the yen higher for now. We see limited further downside in the pair without any fundamental changes and think FX intervention will have limited impact on the longer term USD/JPY forecast.

 

FX intervention threats keep the USD/JPY under pressure

 

Japan’s Prime Minister Takaichi recently warned that authorities are prepared to act against speculative currency moves, amid concerns the yen weakens and domestic bond yields continue to climb. This comes after reports on Friday suggested that the New York Fed had conducted so-called “rate checks” on USD/JPY, a move often interpreted as a precursor to official market action. There are a couple of reasons why the US may be more inclined to act as well as Japan. After all, the yen weakness has been amplifying the sell-off in Japanese government bonds, which has indirectly been pushing US Treasury yields higher too. A strong dollar is also obviously not good for US exports of goods to Japan. But it doesn’t appear like they have actually intervened yet, so that remains a key risk for any long USD/JPY forecast, and leveraged positions. For now, authorities appear comfortable maintaining a deliberately ambiguous stance on intervention, keeping traders on edge.

 

Still, it is important to note that intervention alone might not be enough to cause a meaningful change in the USD/JPY trend, or to provide it with a strong fundamental backing. Real interest rates in Japan remain negative, and the snap election scheduled for 8 February could reintroduce pressure on JGBs and the yen.

 

USD/JPY forecast: Can the dollar bounce back?

 

 

The dollar has been facing pressure against other currencies in recent times, in part because of geopolitical tensions. But the slump against the yen following reports of a “rate check” on Friday, which fuelled speculation that the US could be preparing for coordinated intervention with Japan, further pushed the dollar lower.

 

However, the dollar’s underlying fundamentals have not meaningfully deteriorated. Beyond the current geopolitical risk premium attached to US assets, the macro backdrop remains broadly supportive for the greenback, thanks to slight improvement in data. This week’s FOMC meeting could even lean mildly dollar-positive if the Fed Chair turns out to be more hawkish than expected. For the greenback to be punished significantly further from current levels will require some significant deterioration in data to put imminent rate cuts firmly back on the table.

 

USD/JPY technical analysis

 

Following a sharp two-day sell-off, the USD/JPY is looking a little overextended on the downside. So, a bit of a recovery shouldn’t come as a surprise, especially given the fact that the trend had been bullish before the rumours around intervention from the Japanese authorities started to swirl.

 

 

Therefore, I wouldn’t be surprised to see the USD/JPY chart were to snap back and reclaim the broken support between the 154.50 and 155.00 area. If it does that, then we could well see renewed bullish momentum in the pair, especially if the Fed is perceived to be a little more on the hawkish side this week, or if the big tech earnings top estimates.

 

At the same time, the market is starting to ask real questions about the intervention from the Japanese authorities. So far, it looks like it’s only been verbal intervention. Therefore, the onus is on the Japanese authorities to provide actual substance and step in with real action.

 

A break back above 155.00 could potentially pave the way for a move towards 156.00, and then 157.50 is the next key resistance area to watch, which previously acted as support before the drop we saw on Friday.

 

On the downside, there isn’t much in terms of support until the overnight lows around 153.30. Below that, we have the 152.00 handle, where the bullish trend line comes into play. And below that, the next key support level is around the 150.00 handle, where we also have the 200-day moving average converging.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R