Japanese Yen Forecast: USD/JPY Climbs After Japan’s GDP Miss

USD/JPY ended last week down 2.9% at 152.629. Rising bets on an April Bank of Japan rate hike, softer US inflation, and Prime Minister Takaichi’s landslide election victory sent the pair sharply lower.

However, on Monday, February 16, Japanese GDP data cooled speculation about an April BoJ rate hike, dampening demand for the yen.

Nevertheless, ongoing expectations of an H1 2026 BoJ rate hike, intervention threats, and hopes that Prime Minister Takaichi will pursue prudent fiscal policy continue to support the bearish short- to medium-term outlook for USD/JPY.

Below, I’ll discuss the macro backdrop, near-term price catalysts, and technical levels traders should closely watch.

Japanese Economic Data Cools April BoJ Rate Hike Bets

On February 16, Japanese economic data tempered expectations of an April BoJ rate hike. The Japanese economy expanded 0.1% quarter-on-quarter in Q4 after contracting 0.7% in Q3. Economists expected the economy to grow by 0.4%.

Improving external demand and a continued upswing in private consumption contributed to the quarterly GDP growth. Private consumption increased 0.1% quarter-on-quarter in Q4 after rising 0.2% in Q3. Meanwhile, external demand stalled quarter-on-quarter in Q4 after falling 0.2% in Q3.

Crucially, resilient private consumption fuels demand-driven inflation, supporting a medium-term path to policy normalization. Additionally, external demand avoided a quarterly decline, aligning with the BoJ’s view that the effect of US tariffs has abated, another positive signal.

USD/JPY reacted to the softer-than-expected GDP figures, briefly dropping to a low of 152.758 before climbing to a high of 153.057 early in the Monday session. While weaker-than-forecast, the Q4 data reaffirmed the bearish short- to medium-term price outlook.

This week’s upcoming January trade data will be key to the outlook, given the softer Q4 external demand numbers. Economists forecast exports to soar 12% year-on-year, up from 5.1% in December, and imports to rise 3% (Dec: 5.3%).

FOMC Members in Focus Ahead of Key US Economic Data

While Japanese GDP data weighed on demand for the yen, US economic indicators and Fed commentary on monetary policy will influence expectations of a June Fed rate cut. Later on Monday, FOMC voting member Michelle Bowman is scheduled to speak following last week’s US jobs and CPI reports. Support for a June rate cut on cooling inflation would weaken demand for the US dollar, sending USD/JPY lower.

Last week’s inflation data overshadowed a hotter-than-expected US jobs report, raising bets on a June Fed rate cut. According to the CME FedWatch Tool, the probability of a June cut rose from 64.6% on February 12 to 68.6% on February 13, after the data release. However, Friday’s US Personal Income and Outlays Report, Services PMI numbers, and GDP data are likely to be key for US dollar demand.

Market expectations of a more dovish Fed policy stance and a hawkish BoJ rate path would reaffirm the negative short- to medium-term outlook.

Technical Outlook: Key Levels to Watch

For USD/JPY price trends, traders should closely track technical indicators, key economic indicators, government policy announcements, and central bank chatter.

On the daily chart, USD/JPY trades below its 50-day Exponential Moving Average (EMA), but remains above the 200-day EMA. The EMA positions signal a bearish near-term but bullish longer-term bias. Nevertheless, favorable yen fundamentals align with the short-term technicals, indicating a bearish medium-term outlook.

A sustained break below the 200-day EMA would signal a bearish trend reversal, bringing the 150 support level into play. If breached, 145 would be the next key support level.

Importantly, a sustained fall through the EMAs would reinforce the negative medium- to longer-term price outlook.

Positioning and Risk Outlook

In my view, expectations of BoJ rate hikes and rising Fed rate cut bets support a negative price outlook. However, upside risks to the bearish outlook include:

• Dovish BoJ rhetoric and a lower neutral interest rate (dovish: potentially 1% – 1.25%), signaling few rate hikes to reach policy normalization.
• Stronger-than-expected US economic indicators cool bets on an H1 2026 Fed rate cut.

These scenarios would send USD/JPY higher. Nevertheless, yen intervention warnings are likely to cap further upside near 160.

Read the full USD/JPY forecast, including chart setups and trade ideas.

Conclusion: The BoJ, Takaichi’s Fiscal Policies, and the Fed in Focus

In summary, USD/JPY trends remain sensitive to Prime Minister Takaichi’s fiscal stimulus plans, the BoJ’s policy stance, and the Fed’s rate path.

Significantly, a higher BoJ neutral rate (hawkish: 1.5%-2.5%), indicating multiple BoJ rate hikes, would likely strengthen the yen over the medium term. Furthermore, expectations of multiple Fed rate cuts would signal narrowing US-Japan rate differentials, reinforcing the bearish medium-term outlook for USD/JPY.

Looking beyond the medium-term (1-3 months). A stronger yen and yen carry trade unwinds would likely send USD/JPY toward 140 over 6-12 months.

For more in-depth analysis, review today’s USD/JPY trading setups in our latest reports and consult the economic calendar.