Date:16th January 2026.
USDJPY: Intervention On The Table With US Support.
Japan's finance minister tells journalists that the Japanese government is considering currency intervention to support the Japanese Yen. The Japanese Yen Index has already fallen more than 1.00% in the first 2 weeks of 2026. Though, the main concern for the Japanese Federal Government is the decline against the US Dollar, which at one point was almost at a 2% decline.
The Japanese Yen is currently the second best performing currency during this morning’s Asian session, after the New Zealand Dollar.
Will the Japanese Government Boost the Currency?
Analysts cannot advise that a currency intervention is certain without any doubt. However, over the past week, the Japanese government has told journalists that they will support the currency. When asked about direct currency intervention, the finance minister said the option remains on the table.
For this reason, many traders do believe the government will boost the currency with an intervention, or if they opt not to intervene directly, they will explore other options. It is important to note that the Bank of Japan is not likely to adjust interest rates without the snap elections ending first: the BOJ is due to announce their decision on Japan’s monetary policy next Friday, however, the snap election will most likely not take place until mid-February.
Previously the government's interventions have not been successful other than a short-lived spike. However, according to Japan’s finance minister, on this occasion the move would be supported by the US.
Will the Bank of Japan Increase Interest Rates?
Some economists argue that with Japan’s new expansionary fiscal policy vision, the BOJ is more easily able to increase rates. Although, with the BOJ it's never that simple and they are traditionally known to move slowly.
Market participants are reviewing December’s wholesale inflation data. Monthly inflation slowed from 0.3% to 0.1%, while annual inflation eased from 2.7% to 2.4%, mainly due to lower fuel prices. However, inflation remains above the Bank of Japan’s 2.0% target, which supports the case for maintaining a hawkish policy stance.
According to a Reuters survey of leading economists, most expect the Bank of Japan to pause until July before raising interest rates again. Whereas, other economists believe the cut could come as early as April. The Bank of Japan will most likely raise rates by 0.25% and at most rise to 1.25% by the end of the year.
If the Bank of Japan does not raise rates, the government will struggle to support the Japanese Yen in 2026.
The Fed and Economic Data Support the US Dollar
The US Dollar is trading lower this morning, but has been one of the best performing currencies of the week. The US Dollar Index has risen to its highest price since December 9th.
Inflation has read more or less as per expectations, but economic data has been significantly higher. The Weekly Unemployment Claims fell to 198,000, the lowest in 6 weeks and lower than expectations. The US Retail Sales, Empire State Manufacturing Index and Philly Index have also all risen above expectations.
Due to this, the market is expecting the Federal Reserve to pause in January and March unless data deteriorates. According to the Chicago Exchange, there is a 78% chance of no rate cuts in the first quarter of 2026. By the end of the year there is a 32% chance of 2 rate cuts, a 27% chance of 1 rate cut and a 21% chance of 3 rate cuts this year. However, the Federal Reserve’s hawkishness for the first quarter is supporting the US Dollar.
USDJPY - Technical Analysis
HFM - USDJPY 15-Minute Chart
When it comes to government interventions, spreads tend to widen during the sudden spike in volatility and the price movement happens relatively quickly. Therefore, traders may consider an earlier entry with a medium-term view.
On a 2-hour chart, the USDJPY has retraced back to the 75-bar Exponential Moving Average which can act as a support level. However, if this level is broken, sell signals may materialise on this timeframe. The MACD and RSI on the 2-hour chart are indicating downward price movement.
On the 5-Minute timeframe the 200-bar Simple Moving Average and VWAP are indicating a bearish bias. According to the 200-bar EMA, sell signals are likely to remain as long as the price remains below 158.400. The main support level can be seen at 157.760.
Key Takeaways:
Japan’s finance minister says currency intervention remains an option as the Yen weakens against the US Dollar.
Traders expect government support, but the Bank of Japan is unlikely to change interest rates until after the snap election.
Economists see limited rate hikes in 2026, with policy rates likely peaking near 1.25%.
Strong US economic data and a hawkish Federal Reserve continue to support the US Dollar.
Technical indicators suggest downside risk for USDJPY unless prices move back above key resistance levels.
Always trade with strict risk management. Your capital is the single most important aspect of your trading business.
Please note that times displayed based on local time zone and are from time of writing this report.
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Michalis Efthymiou
HFMarkets
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