USD/JPY rose in Asian trading on Monday, climbing back above 153.00 and snapping a five-day losing streak. The rebound came after Japan reported weaker-than-expected Q4 GDP. The pair had hit a two-week low last Thursday.
Japan’s Cabinet Office said the economy grew 0.1% in Q4 2025, after a 0.7% contraction in the prior quarter. The reading missed expectations and led markets to scale back the odds of a near-term Bank of Japan rate hike.
The GDP report also increased expectations of more fiscal support from Prime Minister Sanae Takaichi. At the same time, some investors still believe the BOJ will keep moving toward policy normalization, which can support the yen.
In the US, the dollar got only limited support because markets still expect Federal Reserve rate cuts. The CME FedWatch Tool showed higher odds of a June cut after the latest inflation data.
In January, headline US CPI rose 0.2% and core CPI increased 0.3%. Those figures mattered more than the prior week’s strong Nonfarm Payrolls report, which helped cap further gains in USD/JPY.
With mixed signals on both sides, USD/JPY is likely to stay range-bound in the near term. Japan’s weak Q4 2025 GDP clearly delays the BOJ’s next rate hike, which puts pressure on the yen. That makes a sharp drop below 152.00 less likely in the next few weeks.
On the other hand, dovish expectations for the Fed are limiting upside. After last week’s softer January 2026 inflation report, CME FedWatch pricing now implies a 75% chance of a rate cut at the June meeting. This weaker dollar bias creates a tough resistance area for USD/JPY, likely around 154.50–155.00.
This setup favors strategies that benefit from low volatility, such as selling option strangles. One approach is to sell out-of-the-money call options with a strike near 155.00 and sell put options with a strike near 151.50, both expiring in three to four weeks. The trade earns premium as long as the pair stays between those levels.
A similar pattern appeared in late 2023 and early 2024, when intervention risk and central bank uncertainty kept USD/JPY moving sideways for long stretches. Reflecting the calmer outlook, one-month implied volatility in USD/JPY options has already fallen to 8.5% from above 11% last month. Lower implied volatility often makes option selling more appealing because option prices are cheaper.
The main risk is a surprise from the BOJ or the Fed. A sudden hawkish shift in Tokyo or unexpectedly strong US data could push USD/JPY out of its range. That’s why it’s important to track central bank commentary closely and be ready to adjust if the pair moves decisively beyond the strike levels.
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