USD/JPY Forecast: The US dollar needs US data to boost its strength again.
2026-01-08 00:26:32
The US dollar's performance at the beginning of the year has been somewhat volatile. It initially received buying support due to weekend developments in Venezuela, but subsequently gave back some of its gains, only to rebound again on Tuesday. It's worth noting that the market digested geopolitical noise very quickly—not only news from Venezuela, but also news related to Greenland. With geopolitics taking a backseat, market focus has shifted entirely to the US data calendar. This week's employment figures may influence the forecast for USD/JPY and the short-term movements of other major currency pairs.
Geopolitics failed to shake risk appetite
The dollar strengthened at the start of the first full trading week of 2026 after dramatic headlines in Venezuela over the weekend. The euro and Swiss franc weakened, while gold, silver, and stocks all rose. Oil prices were more volatile, retreating after sharp swings on Tuesday due to market concerns about new supply. Oil prices weakened further after President Trump indicated that the U.S. could control up to 50 million barrels of Venezuelan oil.
However, the overall market reaction was noticeably mild. While the US dollar recovered some ground, this was more likely driven by seasonal capital inflows and the weakening of currencies like the euro due to weak data, rather than by geopolitical premiums.
As mentioned earlier, the market reaction was mixed, rather than defensive. This suggests that investors are not expecting an immediate escalation, but rather weighing the short-term uncertainty against the long-term impact of Venezuelan oil production. While deeper US involvement in Venezuela, or any military action related to Greenland, could have a greater impact on the market—and potentially drive some funds back to the yen—risk appetite remains stable at present. This backdrop continues to support USD/JPY.
All eyes are now on US data.
A series of US jobs reports will be released for the remainder of this week, which could influence market expectations for early January. Historically, the dollar tends to weaken in December before stabilizing at the start of the new year. With the market already heavily pricing in a Fed rate cut, dollar bears may find it difficult to sustain their momentum unless the data significantly worsens. Therefore, any unexpectedly positive data should support the USD/JPY forecast, especially given the yen's continued pressure as neither the Bank of Japan nor the Japanese government takes any substantial countermeasures.
This week's ISM Manufacturing PMI was strong, following data from the end of 2025, including initial jobless claims, pending home sales, and third-quarter GDP, which generally exceeded expectations. Third-quarter GDP growth was revised upward to an annualized 4.3%, far exceeding the consensus forecast of 3.3%, complicating the rationale for a significant Fed rate cut this year.
Currently, the market expects the Federal Reserve to cut interest rates by 25 basis points for the first time in June, with a second cut anticipated in September. These expectations could be significantly reduced if this week's labor market data is strong. While today's ISM Services PMI is strong, market movements are more likely to be driven by the ADP employment report (market expectations slightly below 50,000) and the JOLTS job openings data (slightly weak). These data are particularly important for the dollar, as the Fed is now more focused on employment than inflation. At present, the short-term outlook for the dollar remains neutral to mildly bullish.
Technical Analysis: Price trend remains biased towards an upward move.
(USD/JPY daily chart source: EasyForex)
From a technical perspective, despite the pullback from around 157.00 this week, the path of least resistance for USD/JPY remains skewed to the upside. The main bearish argument at present is that the pair failed to break the 2025 high during its rally that began in April. The rally stalled below 158.00 in November, leaving the January 2025 high of 158.88 intact.
Nevertheless, the USD/JPY chart suggests consolidation rather than a trend reversal. Key levels to watch are the trend support of a larger triangle pattern and the 21-day exponential moving average, both around 156.00. As long as the bulls hold this area, the upside bias remains intact. However, a clear break below this area could open up further downside to 155.00.
Geopolitics failed to shake risk appetite
The dollar strengthened at the start of the first full trading week of 2026 after dramatic headlines in Venezuela over the weekend. The euro and Swiss franc weakened, while gold, silver, and stocks all rose. Oil prices were more volatile, retreating after sharp swings on Tuesday due to market concerns about new supply. Oil prices weakened further after President Trump indicated that the U.S. could control up to 50 million barrels of Venezuelan oil.
However, the overall market reaction was noticeably mild. While the US dollar recovered some ground, this was more likely driven by seasonal capital inflows and the weakening of currencies like the euro due to weak data, rather than by geopolitical premiums.
As mentioned earlier, the market reaction was mixed, rather than defensive. This suggests that investors are not expecting an immediate escalation, but rather weighing the short-term uncertainty against the long-term impact of Venezuelan oil production. While deeper US involvement in Venezuela, or any military action related to Greenland, could have a greater impact on the market—and potentially drive some funds back to the yen—risk appetite remains stable at present. This backdrop continues to support USD/JPY.
All eyes are now on US data.
A series of US jobs reports will be released for the remainder of this week, which could influence market expectations for early January. Historically, the dollar tends to weaken in December before stabilizing at the start of the new year. With the market already heavily pricing in a Fed rate cut, dollar bears may find it difficult to sustain their momentum unless the data significantly worsens. Therefore, any unexpectedly positive data should support the USD/JPY forecast, especially given the yen's continued pressure as neither the Bank of Japan nor the Japanese government takes any substantial countermeasures.
This week's ISM Manufacturing PMI was strong, following data from the end of 2025, including initial jobless claims, pending home sales, and third-quarter GDP, which generally exceeded expectations. Third-quarter GDP growth was revised upward to an annualized 4.3%, far exceeding the consensus forecast of 3.3%, complicating the rationale for a significant Fed rate cut this year.
Currently, the market expects the Federal Reserve to cut interest rates by 25 basis points for the first time in June, with a second cut anticipated in September. These expectations could be significantly reduced if this week's labor market data is strong. While today's ISM Services PMI is strong, market movements are more likely to be driven by the ADP employment report (market expectations slightly below 50,000) and the JOLTS job openings data (slightly weak). These data are particularly important for the dollar, as the Fed is now more focused on employment than inflation. At present, the short-term outlook for the dollar remains neutral to mildly bullish.
Technical Analysis: Price trend remains biased towards an upward move.
(USD/JPY daily chart source: EasyForex)
From a technical perspective, despite the pullback from around 157.00 this week, the path of least resistance for USD/JPY remains skewed to the upside. The main bearish argument at present is that the pair failed to break the 2025 high during its rally that began in April. The rally stalled below 158.00 in November, leaving the January 2025 high of 158.88 intact.
Nevertheless, the USD/JPY chart suggests consolidation rather than a trend reversal. Key levels to watch are the trend support of a larger triangle pattern and the 21-day exponential moving average, both around 156.00. As long as the bulls hold this area, the upside bias remains intact. However, a clear break below this area could open up further downside to 155.00.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
