USD/JPY moved above the mid-153.00s in Asia on Wednesday after sharp swings the day before. However, it stayed below Tuesday’s weekly high as traders waited for the FOMC Minutes.
Japan’s softer Q4 GDP increased pressure on Prime Minister Takaichi to consider more stimulus after her landslide victory. The IMF warned against cutting the consumption tax, saying it would reduce fiscal room and raise debt risks.
Yen Weakness And Policy Uncertainty
The yen weakened on expectations that Takaichi may resist further Bank of Japan rate hikes. A stronger risk mood—helped by easing geopolitical tensions and signs of progress in US-Iran nuclear talks—also reduced demand for the yen as a safe-haven.
A modest rise in the US dollar also supported the pair. Still, hopes that Takaichi will keep public finances disciplined while backing growth could encourage the BoJ to keep normalising policy, which may limit further yen losses.
The IMF urged Japan to continue raising rates to anchor inflation expectations. The Reuters Tankan poll showed manufacturers’ confidence rose for the first time in three months in February. Exports also rose 16.8% year on year in January, the fastest pace since November 2022.
The dollar’s upside may be limited because markets still expect several Fed rate cuts this year. Traders are also focused on Friday’s US PCE Price Index for more clues on the rate outlook.
Market Focus Turns To Rates And Volatility
Looking back to early 2025, USD/JPY often hovered around 153.00, as markets weighed possible Bank of Japan (BoJ) tightening against expected Federal Reserve rate cuts. A key question was whether Japan’s new leadership would allow tighter policy. That uncertainty drove large two-way moves.
Since then, the policy gap has become clearer, and the pair has moved much higher. While the BoJ ended negative rates last year, it has raised rates only slightly. The overnight call rate is still just 0.1%. Meanwhile, Japan’s national core CPI has stayed above the 2% target, most recently at 2.3% year over year, keeping pressure on the BoJ to act more firmly.
In the US, the aggressive Fed cuts many expected in 2025 arrived more slowly. The Fed Funds rate has dropped only 75 basis points from its peak. Recent data has also supported the dollar. For example, last week’s US CPI was hotter than expected at 3.2%, which reduced expectations for large cuts in 2026 and kept interest-rate differentials in the dollar’s favour.
With USD/JPY now near 158.00, the risk of official intervention by Japanese authorities is rising, which may limit further gains. CFTC data also shows speculative net short yen positions remain extremely high. This crowded trade could reverse quickly if the BoJ turns more hawkish.
Because of this, traders may consider buying cheap out-of-the-money USD/JPY puts, such as a 152.00 strike expiring in six to eight weeks. This offers a lower-cost way to benefit from a surprise policy shift or verbal intervention that triggers a fast unwind of short-yen positions. The defined risk of options may be preferable to shorting the pair outright in this environment.
For traders who think yen weakness will continue for a while before any reversal, a bullish call spread may be a more cautious approach. For example, one could buy a 159.00 call and sell a 161.00 call expiring next month. This reduces the premium paid, limits risk, and still allows gains if the pair rises in a steady, controlled move.
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