A short-term outlook for USDJPY suggests the pair’s consolidation or modest attempts at recovery after its recent decline. However, the broader picture hasn’t changed much, as Japan’s weak GDP data for the fourth quarter (Q4) of 2025 continues to weigh on the yen.
On the flip side, the Asian currency is backed by growing expectations of interest rate hikes by the national regulator. The first move is likely as early as April. The Bank of Japan (BoJ) is projected to raise borrowing costs by 25 basis points—from 0.75% to 1.00%. If this scenario holds true, it will officially end the country’s ultra-loose monetary policy.
That said, a slowdown in the Japanese economy is clouding the outlook for the yen. As noted, preliminary Q4 GDP data showed a marginal increase of 0.1%, well below the predicted 0.4%. Such a twist puts the BoJ between a rock and a hard place. The regulator should be cautious and maneuver carefully, as the combination of weak growth and rate hikes could trigger a recession. To have a full picture, keep in mind that the yen is supported by sustained 10-year government bond yields (above 2.21%) and reduced speculation around the Fed-BoJ policy divergence (i.e., carry trades).
Although the US dollar is still an undisputed leader, investors are poised to play it safe ahead of key upcoming reports. The FOMC meeting minutes offer clarity on the Federal Reserve’s plans for 2026, including how many rate cuts investors can hope for. A consensus forecast points to two to three reductions throughout the year, likely starting in June. Once these questions are off the agenda, market attention will shift toward the US GDP print and PCE inflation data. Strong readings may push USDJPY toward the 156.50 resistance level. Some experts believe that the greenback’s bullish trend may persist if the Fed maintains higher interest rates for longer. In that scenario, the pair could jump above 160.00.
Given the current technical setup, a retest of the 156.50 threshold appears increasingly likely.
The overall recommendation is to buy USDJPY. Place Take profit at 156.50. Set Stop Loss at 151.90.
Always size the position so that your potential loss (protected by a Stop Loss) is no more than 1% of your account balance. If you can't open a position that meets such a risk criterion, it's safer to skip this trade and wait for a better, lower-risk opportunity.
This content is for informational purposes only and is not intended to be investing advice.
