USD/JPY trades near 154.40 on Tuesday, down 0.95% on the day. The pair remains under pressure as the US Dollar weakens. At the same time, the Japanese Yen gets support from politics and comments from officials.
US consumption data suggest weaker demand. December Retail Sales were flat at 0.0% month-on-month, below the 0.4% forecast. On a year-on-year basis, sales rose 2.4%, down from 3.3% previously.
Retail Sales Detail And Market Implications
The Retail Sales control group fell 0.1% month-on-month, after rising 0.2% in November. Retail Sales excluding autos were also flat at 0.0% on the month, missing expectations.
Labour data are mixed. The Employment Cost Index eased to 0.7% in Q4 from 0.8%. Meanwhile, the four-week average of ADP Employment Change rose slightly, but remains low.
The US Dollar Index trades near a more than one-week low, extending a third straight session of losses. Markets are pricing about 50 basis points of rate cuts. Nonfarm Payrolls are due Wednesday, and CPI is due Friday.
In Japan, political risk has eased after Prime Minister Sanae Takaichi’s Liberal Democratic Party won 316 of 465 lower-house seats. Plans to fund tax cuts without adding public debt have reduced worries about fiscal slippage.
BoJ Outlook And Yen Support
Japanese officials continue to say they are ready to act against excessive currency moves. HSBC still expects a 25-basis-point BoJ rate hike in July, but sees risks of an earlier move or an additional hike.
After last year’s sharp drop in USD/JPY, the pair is still testing lower levels. It trades around 149.50 as of today, February 11, 2026. The US Dollar has weakened further after disappointing Retail Sales in December 2025. Soft data released since the start of the year has reinforced this trend.
The US slowdown is becoming clearer, and it should shape strategy. January’s Nonfarm Payrolls report showed only 135,000 new jobs, well below forecasts. The latest CPI report also showed core inflation cooling to a 2.9% annual rate. Together, these numbers confirm the disinflation trend and a cooling labour market that started in Q4 2025.
As a result, futures markets now price a 90% chance of a 25-basis-point Fed rate cut at the March meeting. Traders may consider positioning for lower US rates using options on SOFR futures. Another approach is to sell out-of-the-money calls on the US Dollar Index (DXY) to benefit from further Dollar weakness.
In Japan, the story is strengthening. After Prime Minister Takaichi’s strong election win last year, attention has shifted to the Bank of Japan’s next step. Japan’s national core CPI for January, released last week, unexpectedly rose to 2.8%. This has increased speculation that the BoJ could move before July.
This has driven a major change in expectations. Derivatives markets now show a greater than 50% chance of a BoJ rate hike by the April meeting, a sharp shift from a few months ago. This makes long JPY positions more appealing, either by holding JPY directly or by buying USD/JPY puts that expire in Q2.
The widening policy gap between a dovish Fed and a more hawkish BoJ is raising currency volatility. Last week, implied volatility on USD/JPY options hit its highest level in more than a year. This echoes the opposite setup seen in 2022, when aggressive Fed hikes pushed the pair to multi-decade highs. In this environment, it is important to manage risk with option strategies that have clear limits.
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