Japanese Yen Update: What to Expect from USD/JPY Ahead of the BOJ Decision?

USD/JPY has traded in a consistently neutral range over the last four trading sessions, with an average price fluctuation of around 0.2%. This behavior reflects a lack of meaningful short-term volatility. Part of this muted price action can be explained by market anticipation ahead of the Bank of Japan’s (BOJ) monetary policy decision, scheduled to be announced between today and tomorrow. This event could become the most relevant catalyst for USD/JPY, as it has the potential to trigger a clearer directional move in the coming sessions.

The BOJ decision approaches

Between January 22 and 23, the Bank of Japan is set to announce its monetary policy decision and deliver its accompanying statement. While market consensus expects the interest rate to remain at 0.75%, attention will be focused on the central bank’s guidance regarding future policy decisions. This is particularly important given previous references to inflationary pressure stemming from the prolonged depreciation of the yen and wage growth, factors that could open the door to potential rate hikes later in the year.

Ahead of the BOJ meeting, markets are also awaiting the release of Japan’s annual CPI data for December 2025, with expectations pointing to a reading near 2.4%. In recent months, annual inflation has remained above the BOJ’s 2% target, and as of November 2025 it was close to 3%. If the upcoming data fails to show a clear slowdown, pressure could increase on the BOJ to adopt a more hawkish tone in the months ahead.

Source: TradingEconomics

Taking all this into account, key sessions lie ahead for USD/JPY. A scenario of persistent inflation could prompt the central bank to issue more restrictive commentary, increasing expectations for higher interest rates in Japan. Given that Japan maintains one of the lowest benchmark rates among major central banks, any shift in this outlook could boost the appeal of Japanese bonds, strengthen demand for the yen, and consequently apply downward pressure on USD/JPY in the short term.

 

Is the dollar still a threat?

After several sessions marked by diplomatic tensions and subsequent de-escalation, the U.S. dollar continues to show notable short-term weakness. The DXY index, which measures the dollar’s strength against a basket of currencies, remains near the 98-point area, levels not seen since early January, and continues to display a downward slope, indicating that the dollar has yet to recover the ground lost recently.

Source: TradingEconomics

This recent dollar weakness has partly allowed the Japanese yen to attempt a short-term recovery. As long as the structural weakness in the dollar continues to be reflected in reduced demand for USD, particularly if the DXY maintains its bearish trend, this factor could remain a relevant catalyst, allowing for the development of more consistent selling pressure in USD/JPY over the coming sessions.

 

USD/JPY Technical Outlook

Source: StoneX, Tradingview

• The bullish trend remains dominant: For several months, USD/JPY has maintained a well-defined bullish trendline, which remains the most relevant technical structure on the chart. However, the recent neutral phase within this trend could gain importance if it persists, as it may put the bullish structure at risk and open the door to stronger selling pressure in the coming sessions.
   

• RSI: The RSI shows a flattening curve, indicating that the average momentum over the last 14 sessions is in a state of relative balance. This behavior suggests a potential indecision phase, which could persist as long as the indicator continues to move sideways.
   
• MACD: A similar picture is seen in the MACD, whose histogram remains around the zero line, reflecting a balance in short-term moving average momentum. As long as this condition holds, price indecision may continue to dominate, at least until a key fundamental catalyst, such as the BOJ decision, drives a clearer move.
   

Key levels:

• 158.990 – Key resistance: This level corresponds to the 2025 highs and represents the most important upside barrier at present. A sustained move above this zone could confirm a dominant bullish bias and extend the uptrend in the coming sessions.
   
• 157.344 – Nearby barrier: A recent neutral zone, associated with the lows of the latest sessions. It may act as a key reference level for potential short-term bearish corrections.
   
• 156.483 – Key support: A level aligned with the 50-period simple moving average and the most important support to watch. A move toward this area would put the current bullish structure at risk and could enable a more dominant bearish bias over the coming weeks.
   

Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him on: @julianpineda25