USD/JPY rose for a second day and hit around 155.35 on Thursday, the highest level in more than a week. It later eased in early European trading but held just above 155.00, up nearly 0.20% on the day.
Japan’s weak fourth-quarter GDP has increased calls for more stimulus. The IMF warned that cutting the consumption tax could shrink fiscal room and raise debt risks. This has weighed on the safe-haven yen, especially as overall market sentiment stays positive.
Fed Policy Split Supports Dollar
The US dollar remains supported after the January FOMC minutes showed officials divided on when to cut rates. Some said cuts may be needed if inflation falls as expected. Others warned that easing too soon could put the 2% inflation goal at risk.
Markets still expect three 25-basis-point Fed cuts this year. This contrasts with expectations that the Bank of Japan will keep moving toward policy normalization. At the same time, renewed geopolitical tensions have helped limit yen losses.
Traders are watching upcoming US data, with a focus on Japan and US inflation figures due Friday. A correction noted that the dollar index rose on Wednesday because the Fed sounded less dovish, not hawkish.
USD/JPY is showing a familiar pattern, similar to February 2025. The pair is again testing key resistance as the strong-dollar theme dominates. The latest push higher creates opportunities, but the risks are also rising.
Options Strategies For USDJPY
The Japanese yen is under pressure again due to worries about fiscal health and slow growth. Japan’s Q4 2025 GDP report last week showed an unexpected 0.4% contraction, continuing last year’s weakness. This puts the Bank of Japan in a tough spot and makes aggressive rate hikes less likely, even with core inflation at 2.3%.
Meanwhile, the US dollar is getting support from a Federal Reserve that appears reluctant to cut rates further. This year’s January CPI came in hotter than expected at 2.9%, which supports the Fed’s cautious approach. That differs from late last year, when markets had priced in at least two more cuts by mid-2026.
For options traders, this backdrop may favor buying USD/JPY call options to benefit from the upward momentum. But because the pair can reverse quickly, a call spread can be a safer choice. It helps reduce premium costs and sets clear risk limits, while still offering upside if the pair grinds higher toward 160.00.
The main risk is the gap between central bank paths, similar to what we saw in 2025. The BoJ has a history of surprising markets. Any hawkish shift could quickly strengthen the yen. For protection, traders may also consider long-dated puts or straddles ahead of the next BoJ meeting. These can help hedge, or potentially profit, if USD/JPY drops sharply.
Inflation data from both countries in the coming weeks will likely be the key driver. The US PCE Price Index and Tokyo CPI will be important for direction. Volatility may rise around these releases, which can suit options strategies designed to benefit from large price moves.
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