The prospect of an LDP-JIP supermajority in the Lower House supports the bullish short-term outlook for USD/JPY. However, yen intervention threats are likely to continue capping the upside below 160 as seen in January.

Meanwhile, a supermajority would remove the need for Prime Minister Takaichi to make concessions with smaller coalition parties. Over the longer term, this is likely to give the LDP greater control over legislation and ensure prudent fiscal spending, supporting a bearish medium-term outlook for USD/JPY.

Key Japanese Economic Indicators to Look Out For

While the election result will be key to near-term price trends, Japanese economic data will influence the BoJ’s policy stance. On Monday, February 9, wage growth will fuel speculation about a BoJ rate hike. Economists expect average cash earnings to rise 3% year-on-year in December, following a 0.5% increase in November.

A sharp upswing in wage growth would align with the BoJ’s outlook on wages and growing support for rate hikes.

For context, higher wages could boost households’ purchasing power, offsetting the effects of rising import prices. Increased purchasing power, coupled with improving consumer sentiment, would indicate a pickup in spending. Higher spending would fuel demand-driven inflation and bolster the economy, given that private consumption accounts for around 55% of GDP.

Crucially, these scenarios would align with the BoJ’s hawkish quarterly projections, which sent USD/JPY down 1.64% on January 23.

However, leading inflation indicators will also be key given Tokyo’s softer consumer prices in January. Economists expect producer prices to rise 2.3% year-on-year in January, down from 2.4% in December. Holding above the BoJ’s 2% target may revive bets on an H1 2026 rate hike, boosting demand for the yen. A stronger yen would send USD/JPY lower, supporting the bearish medium-term price outlook.

Follow real-time updates to stay ahead of USD/JPY market developments.

US Economic Calendar: Retail Sales, the Jobs Report, and the Fed in Focus

While Japan’s election and Japanese economic data will affect the yen, US economic indicators and Fed rhetoric will influence buying interest in the US dollar.

On Tuesday, February 10, retail sales data will reflect consumer sentiment and economic momentum. Economists forecast retail sales will rise 0.5% month-on-month in December, down from 0.6% in November.

While resilient consumer spending may ease immediate fears of a US recession, the jobs report will be key on Wednesday, February 11.

Economists expect unemployment to remain at 4.4% in January, and wage growth to slow from 3.8% YoY in December to 3.6% YoY in January. Softer wage growth would indicate a drop in consumer spending, dampening demand-driven inflation. A cooler inflation outlook would suggest a more dovish Fed rate path, reaffirming the bearish medium-term price outlook for USD/JPY.

Beyond the data, traders should closely monitor Fed chatter for clues on the timing of a rate cut.

According to the CME FedWatch Tool, the chances of a March 2026 Fed rate cut increased from 13.4% on January 30 to 23.2% on February 6. Additionally, the probability of a June cut rose from 67.3% to 75%. Shifts in the chances of March and June cuts will be key for US dollar trends.

Market View: Medium-Term Yen Strength

In my opinion, USD/JPY would likely fall toward 150 on market bets on multiple Fed rate cuts and a hawkish BoJ policy stance. Narrowing US-Japan rate differentials would affirm the bearish medium-term (4-8 weeks) outlook. A drop below 150 would reaffirm the longer-term (8-16 weeks) 145-140 range.

Counter-Trend Risks: What Could Send USD/JPY Toward 160?

Upside risks include:

• LDP-JIP wins a landslide election and announces aggressive fiscal spending plans.
• Upbeat US economic data and Fed rhetoric cool bets on an H1 2026 rate cut.
• Weaker Japanese economic data temper BoJ rate hike expectations.

Despite the upside risks, yen intervention threats are likely to cap upside around 160. Given the upside risks, a breakout above 158 would pave the way toward January’s high of 159.453. A move toward 159.453 would invalidate the medium-term bearish structure.

Financial Analysis

Technical Outlook: Bearish Momentum Building

On the daily chart, USD/JPY traded above its 50-day and 200-day Exponential Moving Averages (EMAs). The EMA positions signaled a bullish bias. However, favorable yen fundamentals continue to counter technicals, supporting the negative outlook for USD/JPY.

A drop below the 50-day EMA would expose 155. If breached, the 200-day EMA would be the next key technical support level. Crucially, a sustained fall through the EMAs would indicate a bearish trend reversal, bringing the 150 support level into play. A break below 150 would enable the bears to target the 145-140 range, aligning with the longer-term price projection.

I wrote on the 1^st February that the best trades for the week would be:

1. Long of the EUR/USD currency pair following a daily close above $1.2039. This did not set up.

A summary of last week’s most important data in the market:

1. Preliminary UoM Inflation Expectations – fell from 4.0% to 3.5%.
2. European Central Bank Main Refinancing Rate & Monetary Policy Statement – rates left on hold as expected.
3. Bank of England Official Bank Rate, Votes, Monetary Policy Summary & Report – rates left on hold as expected, but there were a couple more abstentions on the vote than were expected, which was a minor dovish tilt, boosting chances of a rate cut in the near term.
4. RBA Cash Rate, Rate Statement, and Monetary Policy Statement – the RBA hiked its interest rate by 0.25% as was expected, albeit with 73% probability, so the Australian Dollar rose following this news.
5. US JOLTS Job Openings – this was a little worse than expected, which was slightly negative news on the US economy.
6. Preliminary UoM Consumer Sentiment – stronger than expected, which was positive news on the US economy.
7. US ISM Services PMI – approximately as expected.
8. US ISM Manufacturing PMI– considerably stronger than expected, which was positive news on the US economy.
9. New Zealand Unemployment Rate – unexpectedly ticked higher to 5.4%.
10. Canada Unemployment Rate – unexpectedly fell from 6.8% to 6.5%.
11. US Unemployment Claims – slightly higher than expected.

The only two elements here which really affected the markets last week was the continued bullish performance of the US economy, which keeps rate cut expectations low, and the RBA’s rate hike which kept the Australian Dollar performing as the strongest major currency.

The other two relevant issues are

1. The continuing US military build up against Iran, although the USA and Iran began talks last Friday, with President Trump publicly saying they are going well. Prediction markets currently see a US attack on Iran before July as unlikely.
2. An election to the more powerful Lower House of the Japanese Parliament is being held today (Sunday), and opinion polls suggest the new LDP administration will probably win a landslide. This may weaken the Japanese Yen further as the administration truly requires a weaker Yen, or it could be a case of “sell the fact”, which would present a Yen rebound recovery when results start to emerge.

The coming week’s most important data points, in order of likely importance, are:

1. US CPI (inflation)
2. US Average Hourly Earnings
3. US Retail Sales
4. US Non-Farm Employment Change
5. Swiss CPI (inflation)
6. UK GDP
7. US Unemployment Rate
8. US Unemployment Claims

Wednesday will be a public holiday in Japan.

Currency Price Changes and Interest Rates

For the month of February, I forecasted that the EUR/USD currency pair would rise in value.

February 2026 Monthly Forecast Performance to Date

Last week saw one cross with excessive volatility, so I made the following weekly forecast:

The Australian Dollar was the strongest major currency last week, while the Japanese Yen was the weakest. Directional volatility rose significantly last week, with one third of all major pairs and crosses changing in value by more than 1%.

Next week’s volatility is likely to be similar.

You can trade these forecasts in a real or demo Forex brokerage account.

Key Support and Resistance Levels

Last week, the US Dollar Index printed a bullish candlestick which closed higher but with a significant upper wick, signifying some indecision. This is weakly bullish by itself, but we also have a long-term bearish trend with the price below its levels of both 13 and 26 weeks ago. This gives us a conflicted technical picture about the US Dollar.

So, I see the outlook now as uncertain and the best market opportunities will probably not be US Dollar-dependent.

US Dollar Index Weekly Price Chart

The AUD/JPY currency cross made a very strong upwards move, with the weekly close almost right at the high of the range, with unusually high volatility. The price made a bullish breakout to a new 30+ year high.

These are very bullish signs, as are the facts that the Australian Dollar was the strongest major currency last week, backed by an RBA rate hike, while the Japanese Yen continues to depreciate against most currencies as part of its long-term bearish trend, driven by the massive level of Japanese debt.

While this may look like the perfect bullish storm, an excessive weekly move like this is often followed by a retracement for at least a few days, so a drop in price over the next week would not surprise me.

This pair is likely to see the most action in the Forex market next week, at least until the US CPI data is released, so it might be interesting for swing traders on the long side or day traders on the short side.

AUD/JPY Weekly Price Chart

The major US equity indices like the S&P 500 Index and the tech-focused NASDAQ 100 Index are looking very choppy as they struggle to make new highs, showing swings with high volatility. This suggests an unstable market which, although bullish, may be about to reverse.

Yet, the old fashioned, old economy Dow Jones Industrial Average had a very strong week, closing right on its high at a new record, and breaking the big round number at 50,000 too. These are bullish signs, suggesting that it is the big tech firms which dominate the major indices which are causing poor price action. Away from the big tech giants, we see the basic sectors of the old economy doing well enough to make new record highs.

I am not strongly confident of this trade, but I think a long trade here with a trailing stop loss, due to the US economy’s historically strong track record, is worth taking. You might want to use a smaller than usual position size, like 50% for example.

Dow Jones Industrial Average Weekly Price Chart

BTC/USD has continued to make significant bearish breakdowns below a few long-term support levels from just above $81,000 and has recently reached a new 16-month low. This is technically very significant in a bearish way.

While stocks and precious metals were rising strongly over recent months, Bitcoin fell from a record high a few months ago and continued to decline. It is clear the crypto sector is in decline, and that Bitcoin is in serious trouble. Bitcoin was meant to change the world, but outside of Africa, is just has not – you still can’t use it and it is unclear what value it really holds.

I do not like shorting assets, and Bitcoin now seems to be staging a recovery, with a significantly long lower wick now showing on the current weekly candlestick.

I think the price to watch is the support level at about $68,500. If the price action settles above this support, the fall will likely at least pause for a while. If the price action settles below this level, we will likely see a further drop towards the $50,000 area soon.

Bitcoin Weekly Price Chart

Gold, like Silver, saw a massive drop in just a day or two at the end of January. The drop is Silver was stronger, but Gold fell quickly from a record high at about $5,600 to a low at $4,400 by the end of the week, which is shown within the daily price chart below.

Applying a Fibonacci retracement study, we can see that the halfway level of this movement is very confluent with a major round number at $5,000 and this has held firmly as resistance.

The price action suggests we are going to get a consolidation now on gradually declining volatility, like a struck tuning fork playing itself out.

I think short trades from rejections of the $5,000 level as this plays out, provided they are handled skillfully as short-term trades on lower timeframes, is probably going to be the best strategy for trading Gold over the coming week.

If the price gets established above $5,000 that will be a contradictory bullish sign.

Gold Daily Price Chart

I see the best trades this week as:

1. Long of the Dow Jones Industrial Average.

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