USD/JPY Surges as Tokyo Political Turmoil Complicates BOJ Tightening Path; Dollar Finds Footing Amid Tariff Jitters

Traders' Opinions

Summary:

The Japanese Yen experienced a sharp sell-off on Tuesday, propelling USD/JPY nearly 1% higher to breach the 156.00 level.

BUY USDJPY

EXP

TRADING

155.800

Entry Price

160.000

151.900

155.856 -0.039 -0.03%

0.0

Pips

Flat

151.900

Exit Price

155.800

Entry Price

160.000

The Japanese Yen is suffering its steepest decline in weeks, sending the USD/JPY pair surging toward the 156.50 handle during the European session on Tuesday. The catalyst for the violent move lower in the Yen stems not from economic data, but from the political corridors of Tokyo, where Prime Minister Sanae Takaichi is reportedly throwing sand in the gears of the Bank of Japan’s tightening cycle.

According to a detailed report from the Mainichi Shimbun, Prime Minister Takaichi voiced significant reservations about further interest rate increases during a closed-door meeting with BOJ Governor Kazuo Ueda on February 16. The report suggests that Takaichi’s opposition to near-term tightening is more than just a passing comment; it represents a fundamental shift in the political landscape that could severely complicate the BOJ’s ability to normalize policy. Sources familiar with the matter indicate that the newly strengthened administration is demanding greater coordination with the central bank, making the previously independent policy path far more politically sensitive.

Governor Ueda, for his part, attempted to downplay the friction, stating publicly that the discussions were broad, covering general economic and financial developments, and insisted that the Prime Minister made "no specific monetary policy requests." However, market participants are siding with the initial report, interpreting Ueda’s diplomatic language as an attempt to mask what appears to be a significant political hurdle. If the government is actively lobbying against hikes, the window for the BOJ to act—potentially as soon as March or April—is rapidly narrowing, leaving the Yen vulnerable to prolonged weakness.

Adding to the Yen’s woes, Finance Minister Satsuki Katayama offered little in the way of currency support on Tuesday. While she confirmed that Japan will steadily implement its US-bound investment package, her comments on trade were notably passive. Regarding the US Supreme Court’s recent tariff ruling, Katayama stated that the government would "carefully review the details," but offered no concrete retaliation or defense of Japanese automotive interests, merely noting that US tariffs on automobiles "remain in place."

On the other side of the equation, the US Dollar is staging a modest recovery, snapping a two-day losing streak. The Dollar Index is climbing as traders engage in dip-buying, yet the upside remains remarkably capped. The reluctance to aggressively bid the Greenback higher stems from a palpable shift in foreign investor sentiment regarding US assets.

The escalating trade uncertainty, fueled by a labyrinth of potential new tariffs, is spooking international capital flows. The Wall Street Journal reported late Monday that the Trump administration is actively drafting fresh national security tariffs targeting multiple industries. Crucially, these measures—invoked under Section 232 of the Trade Expansion Act of 1962—follow a Supreme Court ruling that invalidated several of the former president’s second-term levies. These proposed duties would exist entirely separate from the 15% universal baseline tariff announced over the weekend, creating a multi-layered and confusing trade barrier that is terrifying global supply chains.

For USD/JPY, this creates a unique dichotomy: the pair is rising because the Yen is imploding on domestic political drama, not because the Dollar is fundamentally strong. If foreign investors begin to shun US assets en masse due to the unpredictable tariff regime, the Greenback’s recent rebound could prove short-lived.

Technical Analysis

Price action continues to respect a long-term ascending trendline that has guided the uptrend since mid-2025, with successive higher highs and higher lows reinforcing the broader bullish bias. The pair is currently trading around 155.80, holding above key horizontal support zones and maintaining constructive structure despite recent volatility.

The most notable technical feature is the confluence zone between 154.00 and 155.00, which has repeatedly acted as both resistance and support. This area now serves as a pivotal demand region following the sharp February sell-off and subsequent rebound. The strong bullish reaction from the 152.00–153.00 support band—aligned with the ascending trendline—confirms that buyers remain active on dips. A sustained break below 152.00 would represent a structural shift, violating both horizontal support and dynamic trendline support. In that scenario, downside risk would likely extend toward 150.00 initially, with further weakness exposing the 147.50–148.00 prior consolidation zone, signaling a broader corrective phase rather than a routine pullback.

On the upside, price is approaching a major resistance ceiling near 159.00–160.00, which marks the recent swing high and a psychologically significant barrier. This level has previously capped bullish momentum and triggered sharp rejections. A decisive daily close above 160.00 would confirm a bullish breakout from the multi-week consolidation range and likely accelerate momentum toward 162.50, followed by the 165.00 handle. Such a move would signal trend continuation in line with the prevailing higher-timeframe structure.

The recent price action suggests a period of consolidation within a broad 152.00–160.00 range. The impulsive rebound from trendline support indicates renewed bullish momentum, but the pair must clear 157.00–158.00 intermediate resistance to open the path toward the range highs. Failure to do so could result in continued sideways movement before the next directional expansion.

Overall, the dominant trend remains bullish while price holds above the ascending trendline and 152.00 structural support. Short-term pullbacks appear corrective within a broader uptrend, and the market is currently attempting to build momentum for a retest of the 159.00–160.00 resistance zone.

TRADE RECOMMENDATION

BUY USD/JPY

ENTRY PRICE: 155.80

STOP LOSS: 151.90

TAKE PROFIT: 160.00

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