Japan’s housing starts fell by 8.5% year-on-year in November, missing the expected growth of 0.4%. This marks a drop in residential construction activity.
In the currency markets, USD/CHF is trying to recover below 0.7900, while EUR/GBP is experiencing slight declines, supported by the Bank of England’s actions to strengthen the pound. The EUR/USD pair continues to lose value, while the pound remains stable during this slow year-end week.
USD/JPY Pair Dynamics
The USD/JPY pair remains above 156.00 after insights from the Bank of Japan. Meanwhile, the AUD/USD pair has corrected to near 0.6700 but remains strong, thanks to a positive outlook for the Reserve Bank of Australia’s policy.
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The significant decline of 8.5% in Japan’s housing starts raises concerns about the economy. This data complicates the Bank of Japan’s decision-making for any possible hawkish policies in early 2026. We can expect continued yen weakness as we move into January.
This housing decline comes as Japan’s core inflation for November 2025 eased slightly to 2.5%, down from the cycle highs of 2024. With the USD/JPY pair already strong above 156.00, this difference in economic performance supports further gains for the pair. The quiet holiday trading period may be holding things steady for the moment, but pressure is building.
Trading Strategies for Derivative Markets
For derivative traders, this suggests buying call options on USD/JPY. This strategy allows for controlled risk while capitalizing on the yen’s potential decline against a strong US dollar. Alternatively, long positions in USD/JPY futures could directly benefit from this economic policy difference.
We observed a similar trend in 2023 and 2024, where disappointing data from Japan consistently weakened the yen as expectations for interest rate hikes were postponed. This indicates we should consider shorting the yen against currencies from countries with more aggressive central banks, like the Australian dollar. Options on pairs such as AUD/JPY, particularly call options, could be a smart trading move.
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