USD/JPY pulled back from the 156.80–156.85 area, a two-week high, and fell to around 155.75 in the Asian session on Thursday, ending a two-day rise. The move followed selling pressure during the session.
The Japanese Yen strengthened after hawkish comments from Bank of Japan officials, supporting expectations of further policy tightening. Trade-related uncertainty and geopolitical risks ahead of US-Iran nuclear talks also supported the Yen, alongside modest US Dollar weakness.
Technical Support In Focus
The drop paused near 155.75, where the 200-period simple moving average on the 4-hour chart meets the 23.6% Fibonacci retracement of the 152.34–156.85 move. A clear break below this level could open the door to further declines.
Next support levels are the 38.2% Fibonacci retracement at 155.15, then the 50.0% level at 154.60. Further falls could bring the 61.8% retracement at 154.06 into view.
The RSI is around 55 after failing to hold near 70. The MACD line sits just above the signal line near zero, pointing to limited directional momentum.
The Bank of Japan targets inflation of around 2%. It used QQE from 2013, added negative rates and yield control in 2016, and lifted rates in March 2024.
Shift In Macro Backdrop
Looking back to 2025, we saw the USD/JPY pair flirting with the 155.75 level, a critical support zone at the time. Today, that level seems a distant memory as the interest rate differential between the US and Japan has significantly narrowed. The market dynamics have fundamentally shifted since the Bank of Japan continued its policy normalization.
The Bank of Japan’s journey, which began with its first rate hike back in March 2024, has been a primary driver. We’ve seen a few more small adjustments since then, a response to domestic inflation that has stubbornly remained above the 2% target for most of the last 18 months. As of January 2026, Japan’s core inflation stood at 2.3%, justifying the central bank’s tighter stance.
On the other side of the pair, the US Federal Reserve has been gradually easing policy as inflation has cooled. US core inflation is now hovering closer to 2.5%, a significant drop from the levels seen in 2024 and 2025, which has allowed the Fed to cut its benchmark rate several times. This policy divergence has reversed, putting sustained downward pressure on the dollar against the yen.
For traders, this environment suggests that betting on significant USD/JPY upside is risky. We should consider strategies like buying JPY calls or USD puts to position for further yen strength. Selling out-of-the-money USD/JPY call spreads could also be an effective way to generate income while maintaining a view that the pair’s potential for gains is now capped.
The key technical level to watch is now the 200-day moving average, currently sitting near 144.50. A decisive break below this could signal another wave of selling, bringing the psychological 140.00 level into focus. We see limited conviction for a strong rebound as long as the fundamental story of narrowing rate differentials remains intact.
