During Tuesday's Asian trading session, the USD/JPY pair saw modest gains, continuing its rebound from the 154.00 level. The pair is now trading near the 155.00 psychological barrier, with an intraday increase of approximately 0.15%.
However, amid mixed fundamental drivers, the potential for further upward movement appears limited. For the Yen, market focus has shifted to Japan's fiscal outlook. Investors are concerned that the government may introduce additional stimulus measures to support the economy.
Japan's weak GDP growth in the fourth quarter has dampened market expectations for an immediate interest rate hike by the Bank of Japan. This cooling of rate hike expectations directly weakens the Yen's interest rate differential support, providing upward momentum for the USD/JPY pair. Concurrently, the US Dollar itself has found some support. The Dollar Index has shown stability recently, helping to sustain the USD/JPY's rebound structure.
Nevertheless, former US President Trump's proposal for a new 15% global tariff plan has sparked concerns about an economic slowdown, limiting the US Dollar's potential for sustained appreciation. More importantly, market bets on further interest rate cuts by the Federal Reserve in the future are gaining traction.
Expectations for monetary easing suggest that the US Dollar's yield advantage could narrow, thereby exerting downward pressure on USD/JPY. A notable divergence in policy paths is evident. Although short-term expectations for a BOJ rate hike have cooled, the broader market still holds the view that the BOJ will continue to advance its policy normalization process.
This contrasts with the Federal Reserve's potentially sustained dovish stance, leaving the long-term direction of interest rate differentials uncertain. Additionally, reports indicate that the US Treasury Secretary conducted a so-called "currency assessment" in January when the Yen rapidly depreciated toward 158. This occurred during a period of heightened political uncertainty ahead of Japan's general election.
Such news has heightened market vigilance regarding potential joint intervention, implying that policy measures could be deployed to stabilize the exchange rate if the Yen experiences another rapid depreciation. On the data front, markets will focus on upcoming US economic indicators, including the Consumer Confidence Index from The Conference Board and the Richmond Fed Manufacturing Index.
Furthermore, speeches from Federal Reserve officials could also influence the Dollar's trajectory. Overall, USD/JPY is currently caught in a tug-of-war between multiple factors. Weak Japanese fundamentals support the pair's rise, but Fed rate cut expectations and potential intervention risks cap the gains. In the short term, the pair is more likely to fluctuate within a 154–156 range.
From a technical perspective on the daily chart, USD/JPY found support near 154.00 and initiated a rebound, currently trading below the significant psychological resistance at 155.00. The moving average system shows a structure indicative of high-level consolidation, with price action yet to form a new trend breakout.
A sustained break above 155.00 could see the next target around the 156.50 area. Conversely, if the rebound falters and support at 154.00 is broken, a retest of the nearby low near 152.80 becomes possible. Momentum indicators suggest the rebound momentum is not yet fully established, indicating a relative balance between bullish and bearish forces.