• USD/JPY has decoupled from US Treasury yields, creating uncertainty
• Trump inauguration may trigger significant market volatility, depending on tariff decisions
• BoJ’s rate decision looms, with a 25bp hike favoured
• USD/JPY upside hinges on a positive risk environment soft tariff stance

Summary

This analysis note explores the evolving drivers of USD/JPY, including the recent breakdown of its correlation with Treasury yields and other influences. With Donald Trump’s inauguration and the BoJ’s rate decision as focal points, it outlines key scenarios and their implications. Technical levels and momentum signals are highlighted to frame the risks and opportunities ahead for traders.

US Yield Domination crumbles

US Treasury yields have been a dominant force driving USD/JPY direction for much of the past year, but that has changed in early 2025. As seen in the chart below, its near-perfect correlation with longer-dated Treasury yields has disintegrated on a daily timeframe over the past month. Nor has there been any relationship with Japanese yields across the entire JGB curve, or with risk assets such as US stocks. While there has been a positive relationship with benchmark yield spreads between the United States and Japan—at 0.56 over the past month—even that relationship has weakened significantly.

Source: TradingView

While doubtful the relationship with interest rate markets has permanently broken down, for the first time in a while, USD/JPY is doing its own thing. Along with positioning over the calendar turn, which can deliver powerful yet temporary movements, the breakdown is likely explained by speculation about what Donald Trump will do when he takes office, along with what the BoJ will do with interest rates next week. Neither event has an obvious answer, creating an environment of extreme uncertainty.

Trump Tariffs: Bark Worse than Bite?

After Trump’s inauguration on Monday, markets will focus on what executive orders he puts in place regarding tariffs on imports entering the United States. During the election campaign, Trump flagged 25% tariffs on Canada and Mexico, up to 60% on China, and 10% on other nations. More recently, there has been speculation tariffs will be implemented gradually to avoid a sudden spike in inflation, rather than immediately.

It is impossible to say what markets have priced in, despite some of the commentary circulating in recent weeks. Depending on what is announced, there will be a sizeable market reaction, potentially violent if the details sit toward the extreme of plausible scenarios.

For USD/JPY, directional risks surrounding the inauguration look skewed to the upside.

While staggered tariffs and evidence of a willingness to negotiate will likely push Treasury yields lower, they would also deliver a significant boost to risk appetite. Directional risks under this scenario therefore screen as higher, as likely gains in riskier asset classes boost the appeal of yen carry trades.

At the other end of the spectrum, if Trump announces immediate and aggressive tariffs, it’s likely to spark a major risk-off episode in markets, potentially capping the rise in Treasury yields while losses in riskier asset classes pressure yen carry trades. That could lead to sizeable declines in USD/JPY.

A scenario somewhere in between may promote USD/JPY upside, as modestly higher Treasury yields and relief that extreme tariff risks have been avoided create an environment that may pressure the yen.

As for Trump’s approach, a look back to his first term as President suggests he tends to grade himself using the performance of the US stock market. Big losses on day one of his presidency would signal failure and deliver a substantial mark-to-market loss when he likely desires the opposite outcome. Therefore, on the balance of probabilities, the worst-case scenario screens as low to this scribe.

BoJ Hike No Certainty to Spark Yen Strength

Friday’s BoJ interest rate decision is the other big event for USD/JPY traders this week. Like Trump’s inauguration, the outcome is anything but clear. Not only is the announcement time uncertain – typically around 12:30 pm JST unless there is a significant policy change – but there is also no certainty about how much rates will be increased, if at all. Unlike other central banks that tend to move in quarter-point increments, the BoJ has raised rates by 20 and 15 basis points during this tightening cycle, leaving the key overnight rate at 0.25%.

Source: Bloomberg

After positive remarks on wages growth last week from BoJ Governor Ueda and his deputy Ryozo Himino, swaps markets have ramped up bets for a 25bp move on Friday, with the implied probability sitting at 88%. That is aggressive, leaving only modest room for yen appreciation if the bank follows through. A smaller hike or no change would see USD/JPY surge higher. A positive market reaction to Trump’s inauguration would increase the likelihood of the BoJ delivering a hike in line with expectations.

With markets pricing in two 25bp hikes this year, the BoJ’s updated inflation forecasts will need to support further hikes to avoid triggering a yen sell-off. When last updated in October, the BoJ forecast CPI less fresh food prices and CPI less fresh food and energy prices to rise by 1.9% in 2025, just shy of the BoJ’s 2% target. Similar or higher forecasts will likely be required to prevent yen weakness. Also watch for commentary on wages and inflation trends from Governor Ueda during his regular press conference at 3:30pm JST.

Source: BoJ

Event Calendar 

The remaining events calendar for the week ahead is found below. Other than the BoJ decision, none screen as particularly important, although Japan’s inflation report would generate volatility if an unlikely sizeable downside surprise were to occur. All times shown are US eastern time.

Source: Refinitiv 

USD/JPY Technical Picture

USD/JPY suffered a rare weekly decline heading into the inauguration and BoJ decision, with a sizeable reversal in US Treasury yields likely contributing to the downside break of the rising wedge it had been sitting in over the past month. Recent price action, alongside bearish signals from momentum indicators such as RSI (14) and MACD, suggests selling rallies and downside breaks may be the preferred strategy. However, given the event risk and assessment that upside risks could dominate, this signal arguably carries less weight than usual.

Source: TradingView

155.00 is where the recent downturn stalled, making it an initial focal point for traders. The key 50-day moving average and the September uptrend are other downside levels to watch. A break below the latter appears unlikely in the near term, especially with the important 200-day moving average nearby.

On the topside, dips toward 156.00 were bought before the latest leg lower, suggesting sellers may now be active around this level. Other notable resistance levels include 158.88, 160.23, and 161.95.

— Written by David Scutt

Follow David on Twitter @scutty

Japanese Yen Technical Forecast: USD/JPY Short-term Trade Levels

• USD/JPY breaks January opening-range lows- threatens deeper correction within September uptrend
• USD/JPY support in view ahead of Trump Inauguration, BoJ rate decision
• Resistance 156.26, 157.19, 157.89-158.45 (key)- Support 154.34, 152.80s (key), 151.50/95

The US Dollar was down more than 1.7% against the Japanese Yen at the lows off the week with USD/JPY threatening a break of a multi-week range. The immediate focus is on this pullback with multi-month uptrend support in view ahead of the extended holiday break. Battle lines drawn on the USD/JPY short-term technical charts heading into the Presidential Inauguration and the BoJ next week.

Review my latest Weekly Strategy Webinar for an in-depth breakdown of this Yen setup and more. Join live on Monday’s at 8:30am EST.

Japanese Yen Price Chart – USD/JPY Daily

Chart Prepared by Michael Boutros, Sr. Technical Strategist; USD/JPY on TradingView

Technical Outlook: In last month’s Japanese Yen Technical Forecast we noted that a rebound off technical support in USD/JPY was, “testing the first major resistance hurdle- looking for possible inflection here. From a trading standpoint, the focus is on a breakout of the weekly opening range (149.60-151.99) for guidance with the near-term recovery vulnerable while below the 200-day moving average.”

USD/JPY broke through resistance the following day with the rally extending nearly 6.9% off the December lows into key resistance at 157.89-158.45. A break of the January opening-range yesterday has already fallen more than 2.4% off the monthly high and the immediate focus is on this pullback towards uptrend support.

Japanese Yen Price Chart – USD/JPY 240min

Chart Prepared by Michael Boutros, Sr. Technical Strategist; USD/JPY on TradingView

A closer look at Japanese Yen price action shows USD/JPY trading within the confines of a proposed descending pitchfork extending off the monthly high with price bounding off the median-line into the close of the week. Initial resistance is being tested now at the November high-close around 156.26 with near-term bearish invalidation set to the objective monthly / yearly open at 157.19. Ultimately, a breach /close above 158.45 is needed to mark uptrend resumption / fuel the next major leg of the advance towards the April high at 160.21.

Initial support rests with the November high-day close (HDC) / 23.6% retracement of the September advance at 154.32/34 and is backed by the lower parallel / 200-day moving average around 152.80s- both levels of interest for possible downside exhaustion / price inflection IF reached. Ultimately, a break / close below the 38.2% retracement / 2022 & 2023 highs at 151.50/95 would be needed to suggest a more significant high was registered last week / a lager trend reversal is underway.

Bottom line: A break of the January opening-range threatens a deeper pullback within the multi-month advance. From a trading standpoint, losses should be limited to the 200-day moving average IF price is heading higher on this stretch with a breach / close above 158.45 needed to fuel the next major leg of the advance.

Keep in mind we are heading into an extended holiday weekend with the inauguration of President Trump and the Bank of Japan (BoJ) interest rate decision on tap next week. Stay nimble here and watch the weekly closes for guidance. Review my latest Japanese Yen Weekly Forecast for a closer look at the longer-term USD/JPY technical trade levels.

USD/JPY Key Economic Data Releases

Economic Calendar – latest economic developments and upcoming event risk.

Active Short-term Technical Charts

— Written by Michael Boutros, Sr Technical Strategist

Follow Michael on X @MBForex

Japanese Yen Technical Forecast: USD/JPY Short-term Trade Levels

• USD/JPY breaks January opening-range lows- threatens deeper correction within September uptrend
• USD/JPY support in view ahead of Trump Inauguration, BoJ rate decision
• Resistance 156.26, 157.19, 157.89-158.45 (key)- Support 154.34, 152.80s (key), 151.50/95

The US Dollar was down more than 1.7% against the Japanese Yen at the lows off the week with USD/JPY threatening a break of a multi-week range. The immediate focus is on this pullback with multi-month uptrend support in view ahead of the extended holiday break. Battle lines drawn on the USD/JPY short-term technical charts heading into the Presidential Inauguration and the BoJ next week.

Review my latest Weekly Strategy Webinar for an in-depth breakdown of this Yen setup and more. Join live on Monday’s at 8:30am EST.

Japanese Yen Price Chart – USD/JPY Daily

Chart Prepared by Michael Boutros, Sr. Technical Strategist; USD/JPY on TradingView

Technical Outlook: In last month’s Japanese Yen Technical Forecast we noted that a rebound off technical support in USD/JPY was, “testing the first major resistance hurdle- looking for possible inflection here. From a trading standpoint, the focus is on a breakout of the weekly opening range (149.60-151.99) for guidance with the near-term recovery vulnerable while below the 200-day moving average.”

USD/JPY broke through resistance the following day with the rally extending nearly 6.9% off the December lows into key resistance at 157.89-158.45. A break of the January opening-range yesterday has already fallen more than 2.4% off the monthly high and the immediate focus is on this pullback towards uptrend support.

Japanese Yen Price Chart – USD/JPY 240min

Chart Prepared by Michael Boutros, Sr. Technical Strategist; USD/JPY on TradingView

A closer look at Japanese Yen price action shows USD/JPY trading within the confines of a proposed descending pitchfork extending off the monthly high with price bounding off the median-line into the close of the week. Initial resistance is being tested now at the November high-close around 156.26 with near-term bearish invalidation set to the objective monthly / yearly open at 157.19. Ultimately, a breach /close above 158.45 is needed to mark uptrend resumption / fuel the next major leg of the advance towards the April high at 160.21.

Initial support rests with the November high-day close (HDC) / 23.6% retracement of the September advance at 154.32/34 and is backed by the lower parallel / 200-day moving average around 152.80s- both levels of interest for possible downside exhaustion / price inflection IF reached. Ultimately, a break / close below the 38.2% retracement / 2022 & 2023 highs at 151.50/95 would be needed to suggest a more significant high was registered last week / a lager trend reversal is underway.

Bottom line: A break of the January opening-range threatens a deeper pullback within the multi-month advance. From a trading standpoint, losses should be limited to the 200-day moving average IF price is heading higher on this stretch with a breach / close above 158.45 needed to fuel the next major leg of the advance.

Keep in mind we are heading into an extended holiday weekend with the inauguration of President Trump and the Bank of Japan (BoJ) interest rate decision on tap next week. Stay nimble here and watch the weekly closes for guidance. Review my latest Japanese Yen Weekly Forecast for a closer look at the longer-term USD/JPY technical trade levels.

USD/JPY Key Economic Data Releases

Economic Calendar – latest economic developments and upcoming event risk.

Active Short-term Technical Charts

— Written by Michael Boutros, Sr Technical Strategist

Follow Michael on X @MBForex