In-Depth Analysis of the Asian Forex Market: China-Japan Disputes and Outlook for the U.S. Dollar Trend

Based on the latest market data[0], the Asian forex market presents the following key quotes:

Currency Pair	Current Price	Intraday Change	52-Week Range
USD/JPY	156.71	+0.05%	139.89 - 158.86
USD/CNH	6.99	-0.08%	6.98 - 7.00
U.S. Dollar Index (DXY)	98.68	+0.07%	Fluctuating in the 97-100 Range

Overall market trading has been relatively muted, with limited volatility in Asian currencies, as investors await guidance from the U.S. nonfarm payrolls data due on Friday (January 10).

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China-Japan diplomatic tensions escalated again on

[1][2]. The Ministry of Commerce of the People’s Republic of China issued Announcement No. 1 of 2026, announcing the immediate tightening of export controls on dual-use items to Japan, prohibiting the export of all items with military uses or that can help enhance Japan’s military capabilities. The list covers over including rare earths (such as gallium, antimony, indium, dysprosium, terbium, etc.), high-performance materials, drones, semiconductor equipment, telecommunications and nuclear energy technologies.

Japan’s Chief Cabinet Secretary Hironori Kihara stated at a regular press conference that the measure is “absolutely unacceptable and extremely regrettable”, and Japan has lodged a strong protest with China through diplomatic channels, demanding the withdrawal of the export ban.

According to a research report released by the Nomura Research Institute (NRI)[2]:

“Japan currently relies on China for about 60% to 70% of its rare earth supplies. If China’s rare earth export ban to Japan lasts for three months, it is expected to cause economic losses of approximately 660 billion yen (about 4.2 billion U.S. dollars) to Japanese enterprises and lead to a 0.43% contraction in Japan’s GDP.”

In addition, Japan is almost 100% dependent on China for heavy rare earths such as dysprosium and terbium used in neodymium magnets for electric vehicle drive motors. Once supplies are restricted, Japan’s economy will face significant shocks.

pointed out[1][2]:

“The forex market has not reacted significantly to China’s implementation of export controls on dual-use items to Japan at present, but offshore yuan against yen will face upward pressure; if tensions further escalate, it may harm Japan’s economy and the performance of the yen.”

She also added:

“Amid market skepticism over further policy tightening by the Bank of Japan, USD/JPY may remain relatively strong (supported by buying interest).”

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The current U.S. Dollar Index is trading around

, and technical analysis[3][4] shows:

• Key Resistance Level
  : 100.00 integer mark
• Key Support Level
  : 96-97 Range
• Daily Chart Structure
  : The downward correction structure remains significant unless the 100 mark is reclaimed
• Weekly Chart Pattern
  : Has continued to decline since April 2025, with a cumulative drop of about 8-10%

According to market analysis[3][4], the following factors will continue to pressure the U.S. dollar in

:

Driver	Specific Impact
Federal Reserve Policy	The market expects 25-50 basis points of interest rate cuts in early 2026, which will weaken the U.S. dollar’s yield advantage
Global Growth Expectations	Economic recovery expectations may reduce the U.S. dollar’s appeal as a safe-haven asset
Monetary Policy Divergence	Uncertainty over the policy directions of the European Central Bank and Bank of Japan

Despite mid-term pressure on the U.S. dollar, the following factors provide short-term support:

1. Geopolitical Risk Premium
   : Turmoil in Venezuela has triggered capital inflows into U.S. dollar safe-haven assets
2. Strategic Position Adjustment
   : Olivier Bellemare, Senior Trader at Monex Canada, stated “The current price movement of the U.S. dollar is skewed toward strategic operations”[4]

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The U.S. December nonfarm payrolls report to be released on

will be the [3][4].

:

• Nonfarm Payrolls Added: Approximately 150,000-200,000 (moderate growth)
• Unemployment Rate: Remaining in the 3.7%-3.8% range
• Wage Growth: 0.2%-0.3% month-over-month

Based on historical data patterns and current market pricing, we have constructed the following scenario analysis:

Scenario	Nonfarm Payrolls Performance	U.S. Dollar Reaction	Yen/Yuan Movement	Probability Weight
Scenario 1	Stronger than expected	Short-term rebound of 0.5-1%	Yen under pressure of 0.3-0.5%	30%
Scenario 2	In line with expectations	Muted fluctuations	Range-bound consolidation	45%
Scenario 3	Weaker than expected	Decline of 1-1.5%	Yen/Yuan rise of 0.8-1.2%	25%

The

noted in its latest research report[4]:

“We believe that the overall risk-on environment in 2026, coupled with favorable regional macroeconomic and valuation factors, will support the positive performance of the Australian dollar and New Zealand dollar against the U.S. dollar this year.”

For Asian currencies, investors should focus on:

1. USD/JPY
   : If it breaks below the 155.00 support level, it may test the 152-153 range
2. USD/CNH
   : The probability of fluctuating in the 6.92-7.05 range is relatively high
3. Cross Currency Pairs
   : CNY/JPY needs to focus on the evolution of China-Japan tensions

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1. U.S. dollar is strong in the short term but faces mid-term pressure
   : The U.S. Dollar Index will fluctuate in the 98-99 range ahead of the nonfarm payrolls data, but expectations of Federal Reserve interest rate cuts will continue to pressure the U.S. dollar in 2026
2. Impact of China-Japan disputes is limited but escalation needs vigilance
   : The current forex market reaction has been muted; if China further tightens rare earth export controls, it may exert additional pressure on the yen
3. Nonfarm payrolls data is a key variable
   : Stronger-than-expected employment data may trigger a short-term rebound in the U.S. dollar, but it is unlikely to change the mid-term downward trend
4. Divergence pattern among Asian currencies
   : The yen is highly volatile due to uncertainty over Bank of Japan policy, while the Chinese yuan has received support near the 7.00 mark

• Upward Risks
  : Nonfarm payrolls data significantly exceeds expectations, China-Japan tensions deteriorate sharply
• Downward Risks
  : Expectations of Federal Reserve interest rate cuts are strengthened, global risk sentiment improves

Currency Pair	Strong Support Level	Strong Resistance Level	Key Event
USD/JPY	155.00	158.86	Bank of Japan Policy Expectations
USD/CNH	6.92	7.05	China’s Trade Data
DXY	97.00	100.00	U.S. Nonfarm Payrolls Report

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The chart above shows:

1. Top Left
   : Recent trend of USD/JPY, indicating fluctuations in the 156-158 range
2. Top Right
   : U.S. Dollar Index (DXY) consolidating in the 98-99 range
3. Bottom Left
   : Scenario analysis of the potential impact of nonfarm payrolls on Asian currencies
4. Bottom Right
   : Risk assessment matrix of the impact of escalating China-Japan tensions on the market

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[0] Jinling API Market Data (Real-Time Quotes, January 8, 2026)
[1] FX168 Financial News - “Latest Signals of Escalating China-Japan Disputes! China Said to Consider Tightening Rare Earth Export Controls to Japan” (https://www.fx168news.com/article/中国-982827)
[2] Caixun Express/Yahoo Taiwan Stock - “China Upgrades Export Control Ban, Japan’s Economy May Be the Biggest Loser” (https://tw.stock.yahoo.com/news/國際經濟-陸出口管制禁令升級-日經濟恐成最大苦主-082312154.html)
[3] CNFOX/Huitong Net - “U.S. Dollar Index Fluctuates at Low Levels, Awaiting Guidance from U.S. Employment and ISM Data” (http://forex.cnfol.com/jingjiyaowen/20260107/31922618.shtml)
[4] Yahoo Hong Kong Finance - “U.S. Dollar Stabilizes as Investors Assess U.S. Employment Data” (https://hk.finance.yahoo.com/news/紐約匯市-美元持穩-投資人評估美國就業數據-215118367.html)

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: This analysis is for reference only and does not constitute investment advice. The forex market is highly volatile, and investors should make prudent decisions based on their own risk tolerance.