Yen fluctuation tug-of-war: Under policy expectations and technical constraints, 1800 Yen becomes a key pivot point

The Japanese yen shows signs of rebound driven by expectations of joint intervention between the US and Japan and the hawkish stance of the Bank of Japan. However, changes in Japan’s domestic political environment and the strong rebound of the US dollar have limited the yen’s gains, creating multiple constraints. The market is closely watching whether the 1800 yen level can serve as a breakout point to determine the future trend.

During Tuesday’s Asian trading session, the yen slightly appreciated against the dollar, ending two consecutive days of decline and hitting a one-week low. Japanese Finance Minister Shunichi Katayama’s recent comments opened the door for US-Japan joint intervention, while discussions at the BOJ’s January meeting about downward pressure from a weak yen on prices further reinforced market expectations of a hawkish tilt from the central bank. Nonetheless, the dollar remains supported by a rebound from four-year lows, forming a key support level for USD/JPY and limiting the yen’s further appreciation.

Turning Point in Japan’s Politics and Economy Alters Market Expectations

Japanese Prime Minister Sanae Tsukiyama’s victory in early February’s snap election brought new variables to the market. She pledged that if the Liberal Democratic Party wins, the consumption tax on food will be suspended for two years, sparking widespread concerns about fiscal sustainability. Meanwhile, Finance Minister Katayama stated that Japan will coordinate closely with US authorities based on the September joint statement, responding appropriately to a weak yen.

The BOJ’s January meeting minutes showed policymakers discussed the imported inflationary pressures caused by a weak yen, reflecting hawkish voices within the board. In contrast, Tsukiyama’s previous comments on the benefits of a weak yen for the economy sparked controversy domestically, with the finance minister later defending her remarks as general discussions on the economic impact of a weak yen. This political divergence has somewhat restrained the yen’s upward momentum.

Strong US Dollar and Fed Policy Expectations Support Exchange Rates

US President Trump announced a trade agreement with India on Monday, immediately reducing tariffs, which boosted investor confidence and reduced demand for safe-haven assets like the yen. Tensions between the US and Iran showed signs of easing, risk premiums declined, and market sentiment improved, adding further pressure on the yen.

The latest ISM manufacturing survey showed US factory activity expanded for the first time in a year, with January’s PMI rising to 52.6 from 47.9 in the previous month. This economic improvement helped the dollar rebound strongly from last week’s four-year lows, limiting the downside for USD/JPY and keeping cautious sentiment among bearish traders.

Former Fed Governor Kevin Warsh, nominated to succeed Jerome Powell as Fed Chair in May (pending Senate approval), is known for a hawkish stance. If inflation expectations begin to rise, he is likely to adopt a vigilant approach. This personnel change is expected to further strengthen the dollar and help limit the decline of USD/JPY, imposing structural constraints on yen appreciation.

1800 Yen as a Technical Pivot, Breakout Will Decide Future Direction

On the technical front, USD/JPY is hovering near the 50% retracement of the recent decline from 159.23 to 152.10. To trigger a broader rebound, the pair needs to decisively break through this key level. A breakout could push the price toward 156.45, which coincides with the 61.8% Fibonacci retracement and the 200-week simple moving average (SMA) on the 4-hour chart. The latter is trending downward around 156.50, maintaining a generally heavy technical tone.

The psychological level of 1800 yen has become a key focus. When USD/JPY trades below the 200-week SMA, any rebound attempts are met with selling pressure. A decisive break above this zone could unlock further upside potential; failure to do so would keep the bears in control, risking a return to the existing bearish structure.

The MACD remains positive and above the signal line, but momentum has weakened, with the histogram shrinking. The RSI stands at 61, comfortably above the midline but not yet overbought. Without a sustained break above the 200-week SMA, any rally is likely corrective rather than a trend reversal.

Multiple Factors Intertwined, Caution Is Warranted

The current market faces a complex macro environment: hawkish signals from the BOJ versus political risks, a dollar supported by economic data but facing long-term rate policy shifts, easing geopolitical tensions but still volatile. Traders are awaiting US JOLTS job openings data for fresh momentum in North American trading, but the mixed macro signals call for caution before making directional bets on USD/JPY.

Whether the yen can effectively break through around 1800 depends heavily on upcoming central bank signals, Japan’s fiscal sustainability outlook, and global risk sentiment. Despite policy support for a rally, the yen faces dual challenges from dollar resilience and technical resistance. In the short term, expect the yen to remain volatile until clearer directional signals emerge.

(This technical analysis was prepared with AI tools.)