USD/JPY rose slightly to near 155.00 in early Asian trade on Thursday. The move came as the US Dollar strengthened after hawkish signals in the Federal Reserve’s meeting minutes. Traders are now waiting for Japan’s National CPI report on Friday for the next cue. The Fed has cut its benchmark rate by a total of 0.75 percentage points across moves in September, October, and December. This brought the target range to 3.5%–3.75%. Minutes from the January meeting showed officials were divided on what comes next, with several saying rate hikes could still be on the table.

Japan Political And Fiscal Backdrop

In Japan, Prime Minister Sanae Takaichi’s recent election win has lifted expectations for looser fiscal policy. This includes talk of a two-year suspension of the food sales tax. The IMF has warned Japan against such tax cuts, arguing they could undermine fiscal stability. Markets currently see the next Bank of Japan rate hike as most likely in April. Some also see March as possible if wage growth and inflation stay strong. Expectations for more BoJ tightening by April or July are generally supportive for the Yen and could weigh on USD/JPY. The Yen is driven by Japan’s economic data, BoJ policy, the US–Japan bond yield gap, and overall risk sentiment. Direct BoJ intervention is rare. Meanwhile, the BoJ’s ultra-loose policy from 2013 to 2024 helped weaken the Yen, until the central bank began a gradual shift in 2024. Earlier in 2025, USD/JPY pushed toward 155.00 due to hawkish Fed signals and a more cautious BoJ. Now, on February 19, 2026, the pair trades much lower near 148.50 as central bank policy paths have moved away from last year’s expectations. This change reflects the steady, but clear, policy tightening Japan has delivered over the past 12 months.

Policy Divergence And Trading Implications

As expected, the Federal Reserve cut rates into the 3.50%–3.75% range late last year. But US inflation has remained stubborn. The latest Core PCE reading is still above 3%, which has kept the Fed on hold since December 2025. This has helped prevent a larger drop in the US Dollar and has kept it relatively firm against other currencies. In contrast, the Bank of Japan followed through with the rate hikes expected in 2025. It lifted its policy rate to 0.25% through two separate increases. This was a major shift away from negative rates and has supported the Japanese Yen. Traders are now looking for the BoJ’s next signal, which will depend heavily on upcoming data. In the weeks ahead, one major event for traders is Japan’s annual “Shunto” spring wage talks. Early reports suggest large unions are seeking wage gains above 5%, a level not seen in decades. If the final wage deals are strong, the BoJ may feel pressure to tighten further to contain inflation, which would likely support the Yen. With that setup, derivatives traders may look to position for more Yen strength, which would mean a lower USD/JPY. One straightforward approach is buying USD/JPY put options expiring in April or May 2026 to target a possible post-Shunto rate hike. Put spreads—buying one put and selling another at a lower strike—may offer a lower-cost way to express the same view. Still, the US–Japan rate gap remains wide. The US 10-year Treasury yield is around 4.2%, while Japan’s 10-year yield is near 0.9%. This gap supports carry trades and can keep demand under USD/JPY. So while momentum may favor a lower USD/JPY, pullbacks could attract strong buyers. Create your live VT Markets account and start trading now.

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