USDJPY breaks above a 52-week high
USDJPY touched 159.3 during the Asian session this morning, breaking above its 52-week high. This move is neither random nor purely technical; instead, it reflects a deeper shift in how the market is reassessing the relative strength of the U.S. dollar versus the Japanese yen.
On the U.S. side, the strength of the dollar, with the DXY rising toward 98.8 – was reinforced after the latest inflation data failed to deliver the kind of cooling surprise markets had hoped for.
December CPI rose 0.3% month-on-month, while headline CPI increased 2.7% year-on-year, both in line with expectations.
In the current context, however, the fact that inflation did not ease further carries important implications. It suggests that the disinflation process remains controlled but not strong enough to justify an earlier rate cut by the Fed, thereby keeping U.S. yields attractive and supporting the dollar.
Another key pillar underpinning USD strength is confidence in the U.S. monetary policy framework. Despite political pressure surrounding Fed Chair Jerome Powell, market reactions indicate that this confidence has not been materially eroded.
Major banks and financial institutions have continued to publicly support the Fed’s independence. In an increasingly uncertain global environment, policy stability and consistency can matter more than outright growth and this remains a clear advantage for the U.S. dollar.
By contrast, the weakness of the yen is no longer simply a story of interest rate differentials. The Japanese government has shown a tendency to continue expanding fiscal spending to support a sluggish economy, raising concerns over Japan’s fiscal outlook.
Japan already carries a heavy public debt burden. According to the IMF (WEO October 2025), Japan’s general government gross debt stands at around 229.6% of GDP, meaning that any signal pointing to higher spending or increased bond issuance tends to make investors more cautious toward the yen over the long term.
Although the Bank of Japan has taken historically significant steps toward exiting its ultra-loose monetary policy, markets remain sceptical about the decisiveness of this normalization process. Real interest rates in Japan remain low, while the BOJ continues to stress the need to observe more data before acting more forcefully. As a result, the policy gap between the U.S. and Japan has not meaningfully narrowed, leaving the yen without a sufficiently strong anchor to reverse its broader trend.
In my view, USDJPY breaking above its 52-week high reflects a shift in market confidence, rather than a short-term rally. The U.S. dollar is being favoured not because the U.S. economy is exceptionally strong, but because it remains resilient enough and the Fed continues to be perceived as a central bank with a clear stance and sufficient credibility to maintain restrictive policy when necessary.
Meanwhile, the yen remains under pressure from structural concerns, including weak growth prospects, a heavy fiscal burden, and a slow and cautious policy normalization process by the BOJ in the eyes of investors.
While the broader USDJPY trend remains biased to the upside and gains could potentially extend toward the historical high around 161.9, policy risks are rising as the pair moves deeper into elevated territory. The most significant risk does not come from U.S. data, but from Japan’s potential response, as history shows that Tokyo may act or at least issue strong signals, when yen weakness accelerates too rapidly.
