US macro backdrop: mixed data but labor strength and rate expectations support the dollar
Fundamentally, the dollar side of USD/JPY remains supported by a combination of still-tight labor conditions and an easing path that is gradual rather than aggressive. In 2025 the Federal Reserve delivered three 25-basis-point cuts, but the current pricing still implies around 62 basis points of easing by the end of 2026, with only a roughly 57% probability assigned to a first cut as early as March. This is not the profile of a central bank in panic mode; instead, it is a controlled normalization that keeps short-end US yields elevated versus Japan. Recent US data have been mixed rather than weak. ISM Manufacturing came in soft at the start of the week, but ISM Services surprised to the upside, and the ADP employment report remained solid despite a small miss, while Job Openings softened. Initial Jobless Claims at 208,000 versus a 210,000 forecast confirm that layoffs remain limited. The upcoming Nonfarm Payrolls report with a 60,000 consensus gain and unemployment ticking down to 4.5% will be a key test; a print materially stronger than that would push pricing toward fewer cuts and support USD/JPY, while a big downside surprise would do the opposite. In parallel, the US dollar index is trying to break above 98.85–99.00, with a potential medium-term target at 100.25–100.40; a successful breakout there would add fuel to dollar demand across the board, including against the yen.
Japanese side: soft wages, cooler inflation and weak sentiment keep the BoJ behind the curve
On the yen side of USD/JPY, the backdrop does not justify aggressive tightening. Latest wage data from Japan underwhelmed expectations, and Tokyo CPI for December came in softer than forecast, even though inflation remains above the Bank of Japan’s 2% target. The BoJ continues to insist that durable wage growth is the precondition for meaningful policy normalization, and that condition is not yet being met in the data. As a result, the market is pricing only around 36 basis points of tightening over the coming year, and if wages and prices continue to moderate, that pricing could shrink further, with a non-trivial risk that there is no additional hike at all. On the sentiment side, Japanese Consumer Confidence slipped from 37.5 to 37.2 versus a 37.8 forecast, underscoring that households are not experiencing robust momentum despite inflation. The yen has seen short bursts of strength driven by risk aversion and tariff headlines out of Washington, but those moves have tended to fade as rate differentials reassert themselves. Put simply, the policy and macro gap between the US and Japan still leans in favor of a higher USD/JPY, even if occasional risk-off spikes temporarily strengthen the yen.
Event risk cluster: NFP, tariffs and global risk sentiment as near-term catalysts for USD/JPY
The next 48 hours pack meaningful catalysts for USD/JPY. Friday’s US Nonfarm Payrolls will drive the front end of the US curve and either reinforce or challenge the current pricing of around 62 basis points of Fed cuts. A strong labor print and stable unemployment would back the dollar, support the breakout attempt above 157.00 and keep the 157.70–158.88 zone under pressure. A weak payrolls number and a rise in unemployment would increase the odds of earlier and deeper easing, pushing yields lower and dragging USD/JPY toward the mid-155s. At the same time, a scheduled Supreme Court opinion day on Trump-era tariffs introduces headline risk that can swing global risk sentiment in either direction. If the Court decision is perceived as re-opening the door to higher tariffs, equity markets could wobble, US yields might slip at the margin, and safe-haven flows into the yen could temporarily weigh on USD/JPY. However, if the broader narrative remains that the US economy is growing moderately with controlled inflation and only gradual policy easing, risk assets could absorb tariff noise while USD/JPY continues to trade primarily on rate and growth differentials.
Short-term technical roadmap: upside triggers from 157.00 to the 160.74–161.95 band
On the upside, the immediate trigger for USD/JPY is a sustained break above 157.00 and then 157.70. A daily close above 157.00 would neutralize the latest series of lower intraday highs and confirm that buyers have regained control of the near-term range. A weekly close above 157.70, the 2025 high-week close and median-line region, would mark proper resumption of the broader uptrend and open the path to retest 157.90 and then the prior swing high at 158.88. If USD/JPY can clear 158.88 on a convincing weekly close, the next technical magnet is the 160.74–161.95 band defined by last year’s high-week close and swing high. That zone is where trend followers will likely take significant profits and where macro traders will reassess the sustainability of the long-running yen weakness theme. A run into that band would almost certainly require a combination of firm US data, a dollar index trading above 100, and continued disappointment from Japanese inflation and wage numbers.
Downside risk map: 156.35, 155.60, 154.40 and 151.90 as key inflection points
On the downside, the first line that matters is the cluster around 156.35–156.40, where the rising 20-day EMA and the lower triangle boundary converge. A decisive daily close below that zone would tell you that the short-term bullish structure is breaking down and would put the 155.60 target from the triangle’s bearish scenario in play. If 155.60 fails to attract demand, the focus shifts to the more important 155.03–154.50 region, where the November 2024 high close and the recent horizontal base overlap. A clean break and weekly close below 155.03 would be the first serious signal that a medium-term top might be forming in USD/JPY. Below that, 154.40, the recent range floor, is the line that separates a conventional correction from something larger; a loss of 154.40 would expose 152.80, the November 7 low, and then the 151.91–151.94 band of prior cycle highs. A break of that 151.90 area, especially if it coincides with a test of the longer-term trendline around 151.00, would confirm that a larger reversal is underway and that the multi-year yen downtrend is finally giving way to a more durable yen recovery. At that stage the narrative would shift from “buy dips” to “sell rallies” in USD/JPY.
Tactical trading stance: range tactics now, directional conviction after NFP
Until NFP and the tariff headlines clear, USD/JPY remains a range trade biased higher. The 154.50–155.00 band offers attractive risk-reward for medium-term buyers who want to position for a re-test of 158.88 and potentially the 160.74–161.95 zone, with obvious invalidation below 154.40. Intraday participants can use the rising channel and the triangle structure to fade moves toward 156.40–156.50 on the long side, or to lean short into the 157.70–157.90 area while the range is intact. Both strategies must recognize that NFP plus a Supreme Court tariff decision can expand volatility beyond recent norms, so position sizing and stop placement need to be adjusted accordingly. Once the data hit, the market will either reward the current gradual-easing, strong-dollar narrative – which supports an upside break – or force a repricing toward faster Fed cuts that would finally give the yen a more sustained window to recover.
USD/JPY verdict: Buy-on-dips bias, bullish with clear line in the sand at 155.00
After integrating the technical structure and the macro backdrop, the balance of probabilities still favors a bullish stance on USD/JPY with a Buy-on-dips approach. The pair is trading above a rising 20-day EMA around 156.35, the weekly trend remains higher after a 12.7% rebound from the 2025 low, DXY is challenging resistance at 98.85–99.00, and the Fed is only slowly easing while the Bank of Japan remains pinned down by soft wages, cooler inflation and weak consumer confidence. As long as USD/JPY holds above the 155.03–154.50 support cluster, the structure argues for targeting 157.70, 158.88 and eventually 160.74–161.95 on a multi-week horizon. A sustained break and weekly close below roughly 155.00 would invalidate that bullish view and shift the rating to Neutral with downside risk toward 152.80 and 151.90, but until that happens the data and the charts together justify a clear medium-term call: USD/JPY is a Buy on dips, with 155.00 as the line in the sand.
