Japanese Yen Forecast: USD/JPY Slides as US CPI Report Looms

USD/JPY extended its losing streak to four consecutive sessions on Thursday, February 12. Demand for the Japanese yen has intensified since Prime Minister Sanae Takaichi’s landslide election win.

Rising expectations of multiple Bank of Japan rate hikes, intervention warnings, and optimism that Prime Minister Takaichi will endorse prudent fiscal policy management have sent USD/JPY sharply lower.

Meanwhile, bets on a June Fed rate cut linger, cooling buying interest in the US dollar. On Friday, February 13, the US CPI report will be key for the greenback and near-term USD/JPY trends.

Importantly, expectations of narrowing US-Japan interest rate differentials in favor of the yen continue to support a bearish medium-term outlook.

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

Japanese Economic Data Bolsters BoJ Rate Hike Bets

This week, Japanese economic indicators fueled speculation about a Bank of Japan rate hike. Wage growth accelerated at the end of 2025, signaling a pickup in consumer spending. An upswing in spending could fuel demand-driven inflation, supporting market expectations of a more hawkish BoJ rate path. Average cash earnings rose 2.4% year-on-year (YoY) in December, up from 1.7% in November.

Meanwhile, producer prices increased 2.3% YoY in January, down from 2.4% in December. While slightly softer year-on-year, producer prices rose 0.2% month-on-month in January, suggesting an improving demand backdrop. Typically, producers adjust prices subject to demand, passing cost savings or higher prices on to consumers.

East Asia Econ remarked on the January figures, USD/JPY:

“Import prices aren’t rising quickly, but they do remain elevated, supporting PPI in a way that wasn’t true during Japan’s long deflation. More interesting now is the strength of export prices, a dynamic that boosts exporter profits, and via the terms of trade, provides a tailwind for domestic income.”

Crucially, rising domestic income could boost job creation and wages, supporting the BoJ’s USD/JPY quarterly GDP and inflation projections.

Hawkish BoJ Chatter and Intervention Warnings Accelerate USD/JPY Decline

Upbeat Japanese economic data has triggered hawkish sentiment toward the BoJ’s policy outlook. On February 12, Mizuho Bank USD/JPY projected up to three rate hikes in 2026, with a first potentially as early as March. Hawkish bets on the BoJ rate path contrast with ongoing expectations of multiple Fed rate cuts, suggesting sharply narrower US-Japan rate differentials in favor of the yen, contributing to the USD/JPY pair’s decline.

Notably, rising bets on BoJ rate hikes coincided with yen intervention threats.

The government’s stance on yen weakness and the BoJ’s hawkish policy outlook support a bearish short- to medium-term outlook for USD/JPY.

US CPI Report Takes Center Stage

While the yen gets a boost on expectations of multiple BoJ rate hikes, the US CPI report will influence bets on a June Fed rate cut. Economists forecast headline inflation to ease from 2.7% in December to 2.5% in January, with core inflation expected to be 2.5% (Dec: 2.6%).

Softer inflation numbers are likely to raise expectations of a June Fed rate cut, weighing on the US dollar. Given Fed Chair Powell’s concerns about elevated inflation, USD/JPY is likely to be particularly sensitive to the report.

This week’s hotter-than-expected US jobs report has signaled a less dovish Fed rate path. However, inflation trends are likely to be more critical for the Fed.

Market bets on a more dovish Fed rate path and a more hawkish BoJ policy stance would support the bearish short- to medium-term outlook.

Technical Outlook: Key Levels to Watch

For USD/JPY price trends, traders should monitor technical indicators, key economic data, government policies, and central bank rhetoric.

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

A drop below the 200-day EMA would indicate a bearish trend reversal, exposing the 150 support level. If breached, 145 would be the next key support level.

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

Positioning and Risk Outlook

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

• Dovish BoJ chatter and a lower neutral interest rate (dovish: potentially 1% – 1.25%), indicating few rate hikes to reach policy normalization.
• US economic data dampens bets on an H1 2026 Fed rate cut.

These events would send USD/JPY higher. Nevertheless, yen intervention warnings are likely to limit the upside at around 160.

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

Conclusion: Fiscal Policies, the BoJ, and the Fed in Focus

In summary, USD/JPY trends remain dependent on Prime Minister Takaichi’s spending plans, the BoJ’s rate path, and the Fed’s forward guidance.

Importantly, 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, ongoing bets on multiple Fed rate cuts would signal narrowing 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 push USD/JPY toward 140 over the 6-12 month timeline.

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