USD/JPY Forecast: Dollar Awaits Direction from Key US Data

The US dollar has started the year on an uneven note. Initial strength followed weekend developments in Venezuela, before some of those gains were pared back and then partially recovered into Tuesday’s session. What has stood out, however, is how quickly markets have looked past geopolitical headlines. Developments tied not only to Venezuela but also Greenland have failed to generate sustained risk aversion, allowing attention to shift back toward macroeconomic drivers.

With geopolitics taking a back seat, focus now turns firmly to the US economic calendar. A busy slate of employment data over the coming days is likely to influence the USD/JPY outlook and set the tone for broader dollar price action into early January.

Geopolitical Headlines Struggle to Shift Market Sentiment

Following dramatic news from Venezuela over the weekend, the dollar opened the first full trading week of 2026 with modest gains. The euro and Swiss franc weakened, while equity markets and precious metals moved higher. Oil prices were more volatile, initially spiking before retreating on Tuesday as traders assessed the potential for additional supply entering the market. Crude prices softened further after President Trump suggested the US could take control of up to 50 million barrels of Venezuelan oil.

Despite these developments, the broader market reaction has remained restrained. The dollar’s recovery appears driven more by seasonal inflows and currency-specific weakness, particularly in the euro following softer data, rather than any meaningful geopolitical risk premium.

Price action suggests investors are not anticipating an immediate escalation. Instead, markets appear to be weighing short-term uncertainty against longer-term implications for Venezuelan oil output. While deeper US involvement in Venezuela or any military developments related to Greenland could prompt a more defensive reaction and renewed demand for the yen, risk appetite remains intact for now. This backdrop continues to provide support for USD/JPY.

US Employment Data Takes Centre Stage

With geopolitical concerns fading, the focus shifts to a heavy week of US employment data. These releases are likely to shape expectations for the early part of January. Historically, the dollar often struggles into December before finding firmer footing as the new year begins. With a substantial amount of Federal Reserve easing already priced in, dollar downside may be limited unless incoming data deteriorates meaningfully.

Any upside surprises in labour market data would likely support the dollar, particularly against the yen, which remains under pressure amid the lack of strong intervention signals from either the Bank of Japan or Japanese government officials.

The start of the year has not delivered uniformly strong US data. The latest ISM manufacturing PMI came in weaker than expected. However, this followed a series of stronger-than-anticipated releases late in 2025, including jobless claims, pending home sales, and third-quarter GDP. Notably, Q3 growth was revised higher to an annualised 4.3 percent, well above the 3.3 percent consensus, complicating the case for aggressive Fed rate cuts this year.

Markets are currently not fully pricing in the next 25 basis point rate cut until June, with a second cut expected around September. These expectations could be scaled back if this week’s labour market data prove resilient. While the ISM services PMI is expected to soften, price action is more likely to be driven by the ADP employment report, where consensus sits just below 50,000, alongside the JOLTS job openings data. With the Federal Reserve now placing greater emphasis on employment conditions than inflation, these releases carry added significance for the dollar.

Overall, the near-term outlook for the greenback remains neutral to mildly constructive.

USD/JPY Technical Outlook: Bias Still Skewed Higher

USD/JPY Daily

From a technical perspective, the recent pullback from the 157.00 area has not materially

altered the broader structure in USD/JPY. The path of least resistance continues to point higher.

The main bearish consideration at this stage is that the pair failed to post a fresh 2025 high during the rally that began in April. Momentum stalled just below the 158.00 level in November, leaving the January 2025 peak at 158.88 intact. While this caps upside momentum in the near term, the broader trend remains constructive unless key support levels give way.

For now, USD/JPY remains supported, with further direction likely to be determined by incoming US labour market data and the market’s evolving expectations around Federal Reserve policy.