It is somewhat fair to characterise USD/JPY as remaining in the driver’s seat of the global USD sell-off that began on Friday. The initial impulse did not come from US data or a shift in Fed expectations, but from renewed Japan-centric policy risk such as suspected JPY intervention, New York Fed rate-check chatter, and heightened domestic political sensitivity to lofty USD/JPY levels, especially after Japanese Prime Minister Sanae Takaichi called for snap elections. Once USD/JPY broke below the 50-day moving average (156.60 on Monday), the subsequent decline in the DXY rallied G10 and Asian currencies.
As markets look to Wednesday’s FOMC, expectations of a less dovish message depicting a stabilizing US labour market, above-target inflation, and resilient growth helped temper the momentum of the greenback’s sell-off. While US President Donald Trump has TACO-ed on EU tariffs over Greenland, he has pivoted to fresh tariff threats against South Korea, citing insufficient follow-through on last year’s trade agreement, and Canada, over its deepening trade ties with China. The USD debasement narrative was not validated by market price action over the past four sessions, with US bond yields falling alongside rising US equities, a combination more consistent with easing financial conditions. Fears of another partial government shutdown on January 30 over the Department of Homeland Security’s (DHS) funding for ICE, following the Minnesota shootings, have so far been limited. The Atlanta Fed is estimating 4Q25 GDP growth at an annualised rate of 5.4% QoQ saar despite the longest shutdown last October-November.
Despite declining below December’s low of 154.35, USD/JPY did not take out October’s high of 153.30 and closed overnight at 154.18. The main hurdle to further downside is the 100-day moving average (currently sitting at 153.80), which has served as a strong technical support since July. Until then, the currencies most vulnerable to near-term profit-taking are those most overbought on 14-day RSI metrics, notably AUD, NZD, GBP, MYR, VND, and SGD.
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