USD/JPY Forecast: Rate Repricing Hits Yen While Nikkei Eyes Records
Author: David Scutt, Market Analyst
Date: February 24, 2026
Key Highlights
Japanese markets experienced significant volatility following reports that Prime Minister Sanae Takaichi expressed concerns about further interest rate hikes to Bank of Japan Governor Kazuo Ueda. This uncertainty has led to a sharp increase in USD/JPY and renewed momentum in the Nikkei 225.
Market Reactions
The speculation surrounding Takaichi's comments has led to a reassessment of rate hike expectations. The likelihood of a 25 basis point increase in March has dropped to below 10%, while April's hike is now seen as uncertain. However, the market still anticipates at least one rate hike by July and potentially another by December.
Technical Analysis
In the USD/JPY market, the currency pair has encountered resistance at the 156.25 level, which is critical for bullish momentum. Technical indicators such as the RSI and MACD suggest a potential upside, with a break above 156.25 likely to attract more buyers. Conversely, a drop below 155.65 could indicate a bearish trend.
Nikkei 225 Performance
The Nikkei 225 has broken out of a bull pennant formation, bringing record highs of 58,570 into focus. Traders are advised to consider former resistance at 57,700 as a potential entry point for long positions, with a stop-loss below this level. If the index falls below 57,700, it may revert to a range-bound trading pattern.
Geopolitical Factors
Geopolitical tensions have also influenced market dynamics, particularly with China imposing export restrictions on dual-use items and rare earth materials to Japan. This development adds to the existing strain in Japan-China relations, further impacting the yen's performance.
Looking Ahead
Upcoming economic data, including Tokyo's inflation figures and US PPI data, will be crucial for shaping future rate expectations. Additionally, President Donald Trump's State of the Union address may have limited immediate market impact, but it remains a point of interest for traders.
Conclusion
The recent developments in the USD/JPY and Nikkei 225 markets highlight the interplay between monetary policy expectations and geopolitical tensions. Traders should remain vigilant as these factors continue to evolve, potentially influencing market sentiment and trading strategies.