Japanese Yen Weekly Forecast: USD/JPY Tests 158 as Election Looms

Published: February 08, 2026, 03:00 GMT+00:00

Key Points

• USD/JPY rebounded as Japan’s election risks and weak household spending undermined yen demand.
• Expectations of an LDP-JIP landslide raised fiscal concerns, pushing JGB yields higher and pressuring the yen.
• Fed rate cut expectations and US jobs data remain key drivers for USD/JPY medium-term trends.

Market Overview

The USD/JPY currency pair experienced a rebound, closing the week at 157.18, reflecting the impact of Japan's upcoming national election and disappointing household spending data. Prime Minister Sanae Takaichi's strong approval ratings have led to expectations of a landslide victory for the ruling Liberal Democratic Party (LDP), which raises concerns about unchecked fiscal policies that could further weaken the yen.

Upcoming Election Impact

Japan's national election on February 8 is pivotal for the USD/JPY outlook. A significant win for the LDP could allow for aggressive fiscal spending, exacerbating Japan's already high debt-to-GDP ratio, which currently exceeds 240%. The anticipation of increased government spending has already led to a rise in 10-year Japanese Government Bond (JGB) yields, which surged from 1.659% in early October to 2.382% by late January.

Economic Indicators to Watch

Key economic indicators will play a crucial role in shaping the Bank of Japan's (BoJ) policy stance. Wage growth data set to be released on February 9 is particularly important, with expectations of a 3% year-on-year increase in average cash earnings. This could bolster consumer spending and inflation, potentially leading to a BoJ rate hike.

Additionally, producer prices are expected to rise 2.3% year-on-year, which, if sustained above the BoJ's 2% target, could further support the yen.

US Economic Calendar

US economic data, including retail sales and jobs reports, will also influence the USD/JPY pair. Retail sales are projected to rise by 0.5% month-on-month, while the jobs report is expected to show stable unemployment at 4.4%. Any signs of weaker wage growth could lead to a more dovish Fed outlook, impacting the USD negatively.

Market View and Technical Analysis

In the medium term, the outlook for USD/JPY appears bearish, with potential declines toward the 150 level if market expectations shift towards multiple Fed rate cuts. However, upside risks remain, particularly if the LDP wins decisively and announces aggressive fiscal policies. Technical indicators suggest that a drop below the 50-day EMA could signal a bearish trend reversal.

Conclusion

The USD/JPY pair has shown a 1.57% gain in February, reversing previous losses. However, the combination of a hawkish BoJ and potential fiscal spending increases could lead to a bearish outlook in the medium to long term. Key levels to watch include 150 and 140 on the downside, and 158 and 160 on the upside.

Author: Bob Mason

With over 28 years of experience in the financial industry, Bob has worked with various global rating agencies and multinational banks, focusing on currencies, commodities, and global equities.