USD/JPY forecast: Currency Pair of the Week 5 January 2026

The US dollar has had a mildly volatile session, rising initially on the back of the weekend developments in Venezuela, before easing back down later in the session, with today’s US macro releases also not helping the dollar. More significant US data will follow later on in the week, which could set the tone for the early parts of January, at least. After a seasonally weak December, the dollar tends to perform better in early parts of the new year. With much of the Fed’s easing priced in, the dollar bears may find the next couple of months an uphill struggle if economic data doesn’t take a turn for the worse. This should benefit the USD/JPY forecast, with the yen remaining under pressure with the BoJ and Japanese government both not showing any real commitments in trying to stem the yen’s ongoing weakness.

 

Muted response from Venezuela situation keeps dollar undermined

 

In response to the weekend’s dramatic developments in Venezuela, we saw the dollar start the first full week of 2026 trading higher, as the likes of the euro and franc gave way, while gold, Bitcoin and equity markets all pushed higher. Crude oil initially fell but later found support as the European session got underway, eventually turning positive on the day. As the session wore on, the dollar started to ease back lower against almost all currencies, including the Japanese yen. In other words, the market’s initial response has been mixed, but far from defensive. The dollar’s failure to hold onto its mild gains suggest investors are not expecting any follow-up fireworks as they assess short-term uncertainty against longer-run supply implications for Venezuelan oil production.

 

The risk of deeper US involvement could be more significant, in which case some risk assets may feel some pressure which could see investors gravitate towards the liquidity and safety of the dollar. But for the time being, risk appetite hasn’t been dented. The US and Canadian dollars’ relationship with oil prices should also be watched. So far, oil’s muted response means the dollar has found only a bit of support. This also likely reflects the fact that Venezuelan output was already severely constrained by sanctions late last year. I imagine it would take Venezuela considerable time to rebuild production to levels of the past. If we see a smoother recovery in Venezuelan oil output, this would be mildly bearish for oil prices amid concerns over excessive supply of the stuff. In turn, that could hurt the Canadian dollar, which has benefited from the absence of Venezuelan heavy crude.

 

Focus turns to US data

 

Away from Venezuela, the focus for the dollar will turn to data this week. Today’s release of ISM Manufacturing PMI wasn’t great at 47.9. But this comes on the back of some forecast-beating data of late, including jobless claims, pending home sales, and Q3 GDP data. Growth in Q3 was an annualised 4.3%, way higher than 3.3% expected, challenging the idea that the Federal Reserve needs to cut rates aggressively this year. Markets currently don’t price the next 25bp cut until June, with another pencilled in for September, but those expectations could be pared back unless this week’s labour market data come in soft. Should US data turn out to be overall better than expected, then this should be a positive influence on the USD/JPY forecast.

 

Technical USD/JPY forecast: Path of least resistance still to the upside

 

 

Despite today’s reversal from the 157.00 resistance level, the path of least resistance remains to the upside on the USD/JPY chart. The only bearish thing I could say at this stage is that the UJ failed to achieve a new high for the year after the rally stalled at just below 158.00 area in November, with January 2025 high of 158.88 remaining intact. But this could be a temporary stop before the potential resumption of the trend. Keep an eye out on the trend support and 21-day exponential average at around the 156.00 area. The bulls will need to defend that level, else a potential drop back to 155.00 area could become a real possibility again.

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R