• USD/JPY remains under pressure around 158.00, with the Japanese Yen strengthening against the US Dollar.
• Japanese authorities step up warnings against what they see as excessive and speculative currency moves.
• US fundamentals stay solid but fail to offset rising political and intervention risks in Japan.

USD/JPY trades lower around 158.00 on Friday at the time of writing, down 0.40% on the day, as the Japanese Yen (JPY) regains some traction against the US Dollar (USD). The move reflects increased caution among investors, with intervention risks from Japanese authorities returning to the forefront after several weeks of persistent Japanese Yen weakness.

On the US side, the US Dollar continues to be supported by still-robust fundamentals. Recent macroeconomic data confirm the resilience of the US economy, particularly in the labor market and consumer spending. Weekly Initial Jobless Claims published by the US Department of Labor fell to 198,000 in the week ended January 10, the lowest level since November, while Retail Sales rose 0.6% month over month, beating market expectations. These indicators reinforce the view that the Federal Reserve (Fed) can afford to keep interest rates unchanged for several more months.

Several Fed officials, however, strike a cautious tone. Chicago Fed President Austan Goolsbee notes that, despite stability in the labor market, the priority remains bringing inflation sustainably back toward target. Meanwhile, San Francisco Fed President Mary Daly says that monetary policy is currently in a good position to respond to changes in economic conditions. Markets now fully price in a steady policy stance at the Fed’s January meeting, while continuing to anticipate around two rate cuts later in the year.

Despite this supportive backdrop for the US Dollar, the currency loses ground against the Japanese Yen, mainly due to Japan-specific factors. Japanese authorities are growing increasingly concerned about what they describe as one-sided and speculative moves in the foreign exchange market. Japan’s Finance Minister Satsuki Katayama recently reiterated that all options remain on the table to counter excessive volatility, including direct intervention and even coordinated action with the United States (US). These comments revive memories of past interventions and encourage traders to trim short Japanese Yen positions.

Domestic political developments are also adding to market nervousness. Reports that Prime Minister Sanae Takaichi may dissolve parliament and call a snap general election as early as February are fueling uncertainty and contributing to JPY volatility. In this environment, any further sharp weakening of the Japanese currency could prompt a firmer response from authorities.

Market attention is now turning to the Bank of Japan (BoJ) policy decision scheduled for later in the month. The central bank is widely expected to keep its policy rate unchanged at 0.75%, underscoring a very gradual pace of normalization. BoJ Governor Kazuo Ueda has reiterated that the central bank stands ready to raise interest rates further if economic conditions evolve in line with its projections. According to a recent Reuters poll, most economists do not expect an immediate move but see further tightening later in 2026, with a potential increase toward 1% or higher by the end of summer.

Overall, the pullback in USD/JPY toward 158.00 reflects a temporary rebalancing in favor of the Japanese Yen. While US fundamentals remain strong, the combination of political uncertainty in Japan, repeated warnings from authorities and expectations surrounding the Bank of Japan is, for now, enough to lend support to the Japanese Yen against the US Dollar.