Japanese Yen Forecast: USD/JPY Reclaims 157 on LDP Landslide Polls

Published: February 06, 2026

Key Points

• USD/JPY reclaimed 157 as Japanese election polls fueled fiscal spending fears and renewed short-term pressure on the yen.
• Weak Japanese household spending cooled BoJ rate hike bets but revived debate over yen weakness and import inflation.
• Dovish Fed expectations and hawkish BoJ risks could trigger a sustained USD/JPY pullback in coming months.

Market Overview

The USD/JPY currency pair has recently reclaimed the 157 level, driven by polls indicating a potential landslide victory for the Liberal Democratic Party (LDP) and Japan Innovation Party (JIP) in the upcoming elections. This political shift raises concerns about increased fiscal spending, which has been a significant factor in the yen's weakness since October.

Japanese Election Impact

As the election approaches, polls suggest that the LDP could secure a simple majority in the Lower House, with some indicating a supermajority that would allow the coalition to pass fiscal legislation without opposition. A landslide victory for Prime Minister Sanae Takaichi could lead to uncontested implementation of her stimulus plans, which may initially support the USD/JPY pair. However, a simple majority could reduce the JIP's influence, potentially benefiting the yen in the longer term.

Economic Data and Household Spending

Recent economic data shows a significant decline in Japanese household spending, which fell by 2.6% year-on-year in December, following a rise in November. This downturn may dampen expectations for a Bank of Japan (BoJ) rate hike in the first half of 2026, as weaker spending could lead to lower inflation and a more dovish monetary policy stance. The impact of a weaker yen on import prices is also a concern, as it erodes purchasing power and raises consumer prices.

US Economic Influence

US economic data, particularly consumer sentiment, will also play a crucial role in shaping the USD/JPY dynamics. A forecasted decline in the Michigan Consumer Sentiment Index could indicate a slowdown in consumer spending and a softer inflation outlook, which would support a dovish Federal Reserve policy. This scenario could narrow the interest rate differentials between the US and Japan, further pressuring the USD/JPY pair.

Technical Analysis

From a technical perspective, the USD/JPY remains above its 50-day and 200-day Exponential Moving Averages (EMAs), indicating a bullish bias. However, a break below the 50-day EMA could lead to further declines, with 150 being a critical support level. A sustained fall through these EMAs would signal a bearish trend reversal.

Positioning and Risk Outlook

The outlook for USD/JPY is influenced by the BoJ's policy stance and expectations of Fed rate cuts. A hawkish BoJ and dovish Fed could lead to a bearish outlook for the pair, while any dovish signals from the BoJ or stronger US economic data could push USD/JPY higher, with potential resistance around 158.

Conclusion

The trends in USD/JPY will largely depend on the results of the upcoming election, the BoJ's monetary policy, and the Fed's rate decisions. A landslide victory for the LDP-JIP coalition and a more hawkish BoJ could strengthen the yen in the medium term, while dovish Fed signals may further support this trend. Over the longer term, a stronger yen could lead USD/JPY towards the 140 level.