Japanese Yen Outlook: USD/JPY Drivers Scrambled by Tariffs and Geopolitics

Author: David Scutt, Market Analyst

Date: February 21, 2026

Overview

The USD/JPY currency pair has recently faced increased volatility due to a combination of tariff rulings and geopolitical tensions, complicating what had begun to appear as a more stable macroeconomic environment. Traders are advised to remain vigilant as multiple catalysts could influence market dynamics in the near term.

Impact of Tariff Ruling

A recent ruling by the U.S. Supreme Court against the administration's reciprocal tariff framework has introduced significant uncertainty into the market. President Trump's immediate response, which included a blanket 10% tariff on imports, has further clouded the outlook for trade and fiscal policy. The potential for retaliatory measures from trading partners adds to the complexity, reviving trade tensions that had previously subsided.

Market Correlations and Instability

Recent market behavior indicates a shift in correlations affecting USD/JPY. While short-term correlations with yield differentials and equity indices have strengthened, longer-term correlations remain unstable. This suggests that while traditional macroeconomic drivers may have regained some influence, their sustainability is uncertain.

Upcoming Economic Indicators

Attention is now focused on upcoming events, including speeches from Bank of Japan (BOJ) officials and inflation data from Tokyo. The BOJ's stance on monetary policy will be critical, especially as inflation data shows signs of disinflation, which could impact expectations for further tightening.

Geopolitical Risks

Geopolitical tensions, particularly regarding Iran, could also influence market sentiment. While disruptions in energy supply typically favor the dollar, a deterioration in risk sentiment could lead to a flight to safety, benefiting the yen.

Technical Analysis of USD/JPY

Technically, USD/JPY is currently positioned beneath a resistance level around 156.00, with key support levels at 154.45 and 152.00. Recent price action suggests a coiling pattern, indicating potential volatility ahead. Momentum indicators are neutral, providing little directional guidance at this time.

Conclusion

In summary, the outlook for USD/JPY is clouded by recent tariff developments and geopolitical uncertainties. Traders should monitor upcoming economic indicators and geopolitical events closely, as these factors will likely dictate market movements in the near future.