Japanese Yen Forecast: USD/JPY Jumps After Japan CPI Slide

Published: February 19, 2026

Author: Bob Mason

Key Points

• USD/JPY rebounds as Japan's CPI slows to 1.5%, cooling Bank of Japan (BoJ) hike expectations.
• Core-core inflation remains at 2.6%, keeping BoJ normalization expectations alive into 2026.
• US economic data could influence Federal Reserve (Fed) rate cut expectations.

Market Overview

The USD/JPY currency pair experienced a rebound this week, driven by Japanese GDP data that suggested a dovish stance from the BoJ, contrasting with hawkish signals from the Fed. The recent Japanese inflation data, released on February 20, indicated a decline in headline inflation below the BoJ's 2% target, which has implications for the central bank's rate path and the demand for the yen.

Japanese Inflation Data

On February 20, Japan's annual inflation rate fell from 2.1% in December to 1.5% in January, while core-core inflation eased from 2.9% to 2.6%. This cooling inflation suggests weaker demand, which may lead to a less aggressive rate hike approach from the BoJ. Following the release of this data, USD/JPY rose from 154.950 to 155.112, reflecting market sentiment towards a less hawkish BoJ.

Upcoming Economic Indicators

Later in the day, Japanese private sector PMIs will be released, providing further insights into the economy. A forecasted decline in the Services PMI from 53.7 to 53.3 could indicate a loss of economic momentum, as the services sector constitutes a significant portion of Japan's GDP. Conversely, an increase in the Manufacturing PMI could support the BoJ's view on easing US tariff risks.

US Economic Data Impact

Key US economic indicators, including the Personal Income and Outlays report and Q4 GDP data, are expected to influence Fed rate cut expectations. A rise in the Core PCE Price Index could dampen rate cut bets, thereby strengthening the US dollar. However, weaker personal income and spending trends could support a dovish Fed outlook.

Technical Analysis

From a technical perspective, USD/JPY is trading below its 50-day Exponential Moving Average (EMA) but above the 200-day EMA, indicating a bearish near-term outlook with a bullish long-term bias. A sustained break below the 200-day EMA could signal a bearish trend reversal, with key support levels at 150 and 145.

Positioning and Risk Outlook

The outlook for USD/JPY remains negative, influenced by expectations of BoJ rate hikes and Fed rate cuts. However, potential upside risks include dovish BoJ rhetoric and stronger US economic indicators that could shift market sentiment.

Conclusion

The trends in USD/JPY are closely tied to the BoJ's policy outlook and incoming economic data from both Japan and the US. A hawkish stance from the BoJ could strengthen the yen, while multiple Fed rate cuts could narrow the interest rate differential, reinforcing a bearish outlook for USD/JPY in the medium term.