Japanese Yen Forecast: USD/JPY Weakens on Policy Divergence

Published: February 23, 2026

Key Points

• USD/JPY slips below 155 as mixed Japan CPI and BoJ hike bets reshape yen sentiment.
• CME FedWatch shows June Fed cut odds fall to 51.1%, briefly boosting US dollar demand.
• A break below 153 could expose 150 and 145 as EMAs signal rising bearish momentum.

Market Overview

The USD/JPY currency pair experienced a decline below the 155 mark as traders reacted to mixed economic indicators from Japan and shifting expectations regarding monetary policy from the Bank of Japan (BoJ) and the Federal Reserve (Fed). The recent Supreme Court ruling on President Trump's tariffs added to the uncertainty surrounding US economic policy, further impacting demand for the US dollar.

Japanese Economic Indicators

Recent inflation figures from Japan indicated a cooling trend, with the annual inflation rate dropping from 2.1% in December to 1.5% in January. Core inflation also fell from 2.4% to 2.0%, aligning with the BoJ's target. However, the 'core-core' inflation rate, which excludes volatile items, remained elevated at 2.6%, suggesting that the decline in headline inflation may be temporary.

Despite the mixed signals, the services sector showed resilience, with the S&P Global Japan Services PMI increasing slightly, indicating a potential for inflationary pressures in the services sector, which constitutes a significant portion of Japan's GDP.

US Economic Indicators and Fed Policy

In the US, economic data and President Trump's tariff policies are expected to influence the USD/JPY exchange rate. Upcoming reports on factory orders and manufacturing indices will provide insights into the US economy's health. A softer economic report could heighten expectations for a Fed rate cut, thereby weakening the US dollar.

Market expectations for Fed rate cuts have fluctuated, with the probability of a June cut decreasing from 68.6% to 51.1% recently, which has provided some support for the dollar.

Technical Analysis

From a technical perspective, USD/JPY remains below its 50-day Exponential Moving Average (EMA) but above the 200-day EMA. This positioning suggests a bearish near-term outlook while maintaining a bullish longer-term bias. A drop below the 153 level could lead to further declines towards the 150 and 145 support levels.

Outlook and Risks

The outlook for USD/JPY remains negative in the short to medium term, driven by expectations of BoJ rate hikes and Fed rate cuts. However, potential upside risks include dovish signals from the BoJ or stronger-than-expected US economic data, which could bolster the dollar.

Conclusion

The trends in USD/JPY are closely tied to the monetary policy outlook of the BoJ, US economic indicators, and government policies. A hawkish stance from the BoJ could strengthen the yen, while multiple Fed rate cuts could narrow the interest rate differential, reinforcing the bearish outlook for USD/JPY.