USD/JPY Forecast: Rate Repricing Hits Yen While Nikkei Eyes Records
Author: David Scutt, Market Analyst
Date: February 24, 2026
Key Highlights
Recent comments from Prime Minister Sanae Takaichi regarding interest rate hikes have led to significant volatility in the Japanese yen and the Nikkei 225 index.
Market Reactions
Following reports that Takaichi expressed reservations about further interest rate hikes to Bank of Japan Governor Kazuo Ueda, the USD/JPY surged, reflecting a shift in market expectations. This uncertainty has caused a reassessment of rate hike timelines, with the likelihood of a March increase dropping to below 10% and April now viewed as a toss-up.
Geopolitical Tensions
Adding to the yen's weakness, China has announced export restrictions on dual-use items and rare earth materials to certain Japanese entities, escalating tensions between the two nations. This follows Takaichi's controversial visit to the Yasukuni Shrine, which has drawn criticism from China.
Technical Analysis
The USD/JPY pair is currently testing a critical resistance level at 156.25. Technical indicators suggest a bullish bias, with the RSI trending higher and the MACD remaining positive. A decisive break above 156.25 could lead to further gains, while a drop below 155.65 would indicate a potential reversal.
Nikkei 225 Outlook
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.
Looking Ahead
Market participants are awaiting upcoming economic data, including Tokyo's inflation figures and US PPI data, which could further influence rate expectations. The impact of President Donald Trump's State of the Union address is uncertain, but it is not expected to have a lasting effect on the markets.
Conclusion
The recent developments in Japan's monetary policy and geopolitical landscape have created a complex environment for traders. The USD/JPY's movements and the Nikkei's breakout are critical indicators to watch as the market adjusts to new information.