USD/JPY Support Holds, but CPI Holds the Keys to the Next Big Move

Summary:

The USD/JPY pair is clinging to support at 152.500 after a volatile week that saw a 2% selloff triggered by political uncertainty in Japan, only to be offset by a surprisingly strong US jobs report.

Buy USDJPY

EXP

PENDING

153.500

ENTRY

160.000

TGT

151.800

152.786 +0.108 +0.07%

Point

PENDING

151.800

CLOSING

153.500

ENTRY

160.000

TGT

The Japanese Yen is proving to be a battleground for two powerful and opposing macroeconomic forces this week, leaving the USD/JPY pair teetering on a critical technical ledge. After experiencing its most aggressive sell-off in months, the pair has found a tentative footing at the 152.500 support level, a zone that traders are now watching intently as a line in the sand.

The drama began in Tokyo, where the political landscape shifted dramatically. The recent election victory involving high-profile political figure Sanae Takaichi has injected a fresh dose of uncertainty into the market. Takaichi, known for her interventionist views, has sparked immediate concerns among investors regarding the future trajectory of the country’s fiscal and monetary policy mix. The market’s knee-jerk reaction was swift and severe: traders rushed into the safety of the Yen, driving the USD/JPY pair down over 2% and wiping out the majority of the previous week’s hard-won gains. The move was a stark reminder that in the currency world, politics can sometimes trump economics, at least in the short term.

However, just as the Yen was building momentum, the greenback flexed its muscles, backed by the undeniable resilience of the American worker. Friday’s Non-farm Payrolls report for January delivered a classic "Goldilocks" surprise for Dollar bulls. While the headline figure of approximately 130,000 new jobs added was solid, it was the underlying details that truly moved the needle. The unemployment rate unexpectedly ticked down to 4.3%, signaling that the labor market is far from cracking.

These numbers weren’t explosive enough to suggest the economy is overheating, but they were more than sufficient to reinforce a singular, powerful narrative: the US labor market remains remarkably resilient. For Federal Reserve officials and the interest rate futures market, this resilience is key. It reduces the immediate pressure on the central bank to rush into a cycle of rate cuts. As expectations for aggressive near-term easing faded into the background, US Treasury yields perked up. This yield advantage is the lifeblood of the Dollar/Yen pair, and the uptick was enough to halt the sell-off in its tracks and stabilize the pair at the 152.500 handle.

But the calm at 152.500 is likely a facade. The pair is now coiled, waiting for the release of the latest US Consumer Price Index (CPI) report later today, and the data is expected to be an explosive catalyst.

Market consensus points to inflation remaining stubbornly sticky. If the data confirms this, it would validate the Fed’s current "higher for longer" stance. A hot CPI print would effectively slam the door shut on any lingering hopes for a rate cut in the first half of the year, pushing US yields higher and likely igniting a powerful upside breakout for USD/JPY. In this scenario, a move back toward recent highs would be the logical path.

Conversely, the stakes are equally high to the downside. A softer-than-expected inflation reading would be a game-changer. It would immediately revive speculation that the Fed might have room to ease policy sooner than currently projected. This would weigh heavily on the Dollar and, combined with the lingering political uncertainty in Japan, could renew selling pressure on the pair. A break below the 152.500 support could open the floodgates for a test of deeper support levels.

For now, the pair is caught in a tug-of-war between domestic Japanese political risk and robust US economic data. The resolution to this standoff will be written in the CPI numbers. All eyes are on the data wire.

Technical Analysis

From a technical perspective, USD/JPY remains entrenched in a well-defined bullish structure on the daily timeframe, supported by a long-term ascending trendline that has guided price action since mid-2024. The broader pattern continues to reflect higher highs and higher lows, reinforcing the dominant upward bias despite recent volatility.

On the daily chart, price recently retraced sharply from the 158.00–159.50 resistance zone, a supply area that has capped upside attempts multiple times. The pullback found support precisely at the rising trendline, currently intersecting near the 153.00–153.50 region. This confluence of dynamic trendline support and horizontal structure around 154.00 represents a critical decision zone. The market has reacted constructively from this level, suggesting buyers remain active on dips.

The 154.00 level now serves as a pivotal near-term support. A sustained hold above this area keeps the bullish structure intact and favors a renewed push toward 158.00, followed by 160.00, which stands as a major psychological barrier. A decisive daily close above 160.00 would confirm continuation of the broader uptrend and likely open the path toward 163.00–165.00, aligning with the projected measured move illustrated on the chart.

Conversely, a clear breakdown below the ascending trendline and a sustained move beneath 152.50 would signal structural weakness. Such a breach would invalidate the immediate bullish setup and expose the 150.00 handle as the next downside target, with further support seen near 148.00, where previous consolidation occurred. A move below that zone would mark a more meaningful trend deterioration rather than a routine corrective pullback.

Price action currently suggests the recent selloff may have been a corrective retracement within a broader uptrend rather than the start of a reversal. The strong reaction from trendline support and the quick recovery back toward the 154.00 pivot favor a scenario of consolidation before potential continuation higher.

Overall, as long as USD/JPY holds above the ascending trendline and maintains acceptance above 154.00, the broader bias remains bullish, with upside pressure likely to build toward the 158.00–160.00 resistance band in the sessions ahead.

TRADE RECOMMENDATION

BUY USD/JPY

ENTRY PRICE: 153.50

STOP LOSS: 151.80

TAKE PROFIT: 160.00

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Warren Takunda

Analysts

Warren Takunda, a seasoned finance leader specializing in the Middle East, is a trusted senior analyst with a proven track record. As head of the finance team, he excels in financial planning, analysis, and reporting. Warren's expertise in financial modeling and investment analysis delivers valuable insights to clients.

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2131

Win Rate

63.42%

P/L Ratio

0.72

Focus on

XAUUSD, EURUSD, GBPUSD

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USD/JPY Support Holds, but CPI Holds the Keys to the Next Big Move

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