Key Moments
- Investors have largely shrugged off geopolitical events in Venezuela and Greenland, keeping USD/JPY underpinned.
- Recent U.S. data, including 4.3% annualized Q3 GDP versus 3.3% expected, has challenged expectations for aggressive Fed rate cuts.
- Despite a pullback from 157.00, the USD/JPY technical backdrop still favors upside as long as support around 156.00 holds.
Macro Context Keeps Dollar Bid Against the Yen
The U.S. dollar has navigated a mildly choppy start to the week, initially advancing on weekend developments in Venezuela, then easing, and later rebounding on Tuesday. Market participants have, so far, taken geopolitical events in both Venezuela and Greenland in stride.
Attention is now shifting back to incoming U.S. employment data scheduled for the remainder of the week. These releases could be pivotal for shaping expectations around early-2026 rate moves. Historically, after a seasonally weak December, the dollar tends to show firmer performance in the early part of the new year. With a substantial amount of Federal Reserve easing already reflected in pricing, dollar bears may struggle over the next couple of months unless U.S. economic indicators deteriorate meaningfully.
In this context, any upside surprise in U.S. data would likely be constructive for USD/JPY. The yen remains under pressure, with limited apparent willingness from the Bank of Japan or the Japanese government to actively counter its prolonged weakness.
Geopolitical Developments Produce Limited Market Reaction
Following the latest events in Venezuela, the dollar opened the first full trading week of 2026 on a firmer footing. The euro and Swiss franc lost ground, while gold, silver, and equity markets also pushed higher. Crude oil prices experienced volatility before slipping on Tuesday amid concerns about additional supply coming onto the market.
Overall, cross-asset price action has been mixed rather than defensive, indicating that investors are not positioning for major escalation. The market appears to be balancing short-term uncertainty against longer-term implications for Venezuelan oil output.
The potential for deeper U.S. involvement in Venezuela or military action in Greenland remains a source of risk. In such a scenario, some risk assets could come under pressure, potentially driving flows into traditional safe havens such as the yen. For the moment, however, risk appetite has not been meaningfully impaired, which is helping to keep USD/JPY supported.
Data Calendar Shifts Market Focus Back to U.S. Fundamentals
Away from geopolitics, the primary driver for the dollar and USD/JPY is returning to economic releases. The year has started on a softer note for U.S. macro data, with an underwhelming ISM Manufacturing PMI earlier in the week. That weakness followed stronger data late in 2025, including jobless claims, pending home sales, and Q3 GDP.
Q3 growth registered an annualized 4.3%, well above the 3.3% consensus, casting doubt on the need for aggressive rate cuts from the Federal Reserve this year. Market pricing currently reflects the next 25 basis point reduction in June, with another anticipated in September. Those expectations could be reassessed unless this week’s labor market data disappoints. A stronger-than-expected run of releases would likely support the USD/JPY rate.
For today, ISM services PMI is projected to be on the softer side, but price action is more likely to respond to the ADP employment report, where the consensus points to a reading just under 50K, alongside the JOLTS job openings figures. With the Fed’s emphasis pivoting from inflation toward employment, upcoming labor indicators carry elevated significance for the dollar. In the near term, the broader outlook for the greenback remains neutral to mildly constructive.
| Indicator / Event | Recent / Expected Detail | Potential USD/JPY Impact |
|---|---|---|
| Q3 U.S. GDP | 4.3% annualized vs 3.3% expected | Supports reduced need for aggressive Fed cuts; positive for USD/JPY |
| ISM Manufacturing PMI | Weaker start to the year | Introduces some caution on U.S. growth |
| ADP Employment | Consensus: just under 50K | Stronger print could lift USD/JPY; weaker could weigh on the pair |
| JOLTS Job Openings | Upcoming release | Labor market signals watched closely by Fed and FX markets |
| Fed Rate Path | 25bp cuts currently priced for June and September | Repricing on stronger data may favor USD strength |
Technical View: Upside Bias Persists for USD/JPY
From a technical standpoint, the broader path still leans higher for USD/JPY, despite a modest pullback from resistance near 157.00 this week. One potential negative is that the pair did not register a new 2025 high during the rally that began in April, stalling just below 158.00 in November and leaving the January 2025 peak at 158.88 intact. This could, however, simply represent a pause within the prevailing uptrend.
Key short-term support sits around the 156.00 area, where the trend line of the triangle consolidation pattern aligns with the 21-day exponential moving average. Bulls will likely need to defend this zone to avoid a deeper retracement. A failure to hold 156.00 would open the door to a possible move back toward the 155.00 region.
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Disclaimer
Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.
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