USD/JPY found support near 155.35 on Wednesday after retreating from a two-week high set the previous day. It traded around 155.75, nearly flat on the day, after rising over the past week.
The Fed’s hawkish outlook was followed by fresh selling in the US Dollar amid concerns about renewed trade policy turbulence linked to US President Donald Trump. Geopolitical risks supported demand for safe-haven assets such as the Japanese Yen, adding intraday pressure to USD/JPY.
Japan Policy Signals And Yen Dynamics
Reports said Japan’s Prime Minister Sanae Takaichi raised concerns about further rate rises in a meeting last week with BoJ Governor Kazuo Ueda. Japan also nominated two reflationists to the BoJ board, reducing expectations for the pace of rate increases and limiting JPY strength.
Repeated rebounds from the 200-day EMA breakout area and a subsequent rise point to a firmer technical tone. The MACD is above its signal and back in positive territory, while the RSI is around 54.
Resistance is at 156.90, then 158.40, with 160.00 above. Support is at 155.00, then 153.50, and 152.70 near the 200-day EMA.
Looking back at the constructive setup we saw in late 2025, the bullish case for USD/JPY did play out as anticipated. The pair successfully broke through the 156.00 and 158.40 resistance levels we were monitoring, eventually topping out just above the 160.00 mark in December 2025. Now, after a healthy pullback, we are seeing the pair consolidate around the 157.80 level, presenting a new entry point.
Policy Divergence And Trade Volatility
The fundamental driver remains the stark difference in central bank policy, which has only widened. The latest US inflation data for January 2026 came in at a stubborn 3.2%, forcing the Federal Reserve to maintain its hawkish stance in its last meeting. In contrast, Japan’s national CPI last month was just 2.1%, allowing the Bank of Japan to signal that any policy tightening will be extremely gradual.
This policy divergence continues to cap any significant strength in the Japanese Yen. Looking at the data from the last quarter of 2025, Japan’s Tankan survey for large manufacturers showed a dip in business sentiment, reinforcing the BoJ’s cautious approach. This underlying weakness in the yen provides a solid foundation for long USD/JPY positions.
For derivative traders, this environment favors strategies that profit from a gradual rise or a lack of significant downside. We should consider buying call options with strike prices around 159.00 and 160.00, looking at expirations in April or May 2026. This allows us to capitalize on a potential retest of the old highs while defining our risk to the premium paid.
However, we must remain mindful of the volatility that US trade policy rhetoric can create, a factor that was a concern for us last year as well. Any unexpected tariff announcements could trigger a flight to safety, causing a sharp, temporary drop in USD/JPY. To manage this risk, a small allocation to out-of-the-money puts can serve as an effective hedge for our bullish positions.
