USD/JPY stayed in a tight range on Thursday, holding near 154.95 after a brief move above 155.00. Traders were cautious ahead of Japan’s CPI release on Friday.
The US Dollar was supported by solid US data and a hawkish message in the Federal Reserve’s January meeting minutes. Policymakers discussed keeping rates on hold for a while. They also did not rule out future rate hikes if inflation stays above target.
Us Data Supports The Dollar
The US Dollar Index (DXY) was near 97.95, its highest level since 6 February. Initial Jobless Claims fell to 206K for the week ending 14 February, beating the 225K forecast and down from 229K. The four-week average slipped to 219K from 220K.
The Philadelphia Fed Manufacturing Survey rose to 16.3 in February, above the 8.5 forecast and up from 12.6 in January. Markets still priced in almost two rate cuts this year. Attention now turns to Core PCE, Q4 GDP, and February PMI data.
Japan’s CPI is closely watched for clues about Bank of Japan policy. In a Reuters poll (10–18 February), all 76 economists expected no change in March. A majority, 58% (43 of 74), expected the policy rate to reach 1% by the end of June. Among the 44 who gave timing, June (36%), April (20%), and July (34%) were the most common picks.
Based on today’s market conditions, USD/JPY looks set for a continued move toward 160.00. This is very different from the consolidation seen a year ago. In February 2025, the pair hovered around 155.00 as markets weighed a strong dollar against the chance of a Bank of Japan (BoJ) rate hike. Those opposing forces kept the pair temporarily balanced.
Why Yen Weakness Has Persisted
In early 2025, many expected the BoJ to raise its policy rate to 1% by that summer. That did not happen. Central bank data shows that the BoJ’s key policy rate is still only 0.25% today. This slower path has been a major reason for ongoing yen weakness over the past twelve months.
On the US side, the hawkish Fed stance seen in early 2025 remained in place for most of the year as inflation stayed sticky. January 2026 US inflation data showed core CPI still high at 3.2%. This keeps the interest rate gap wide in favor of the US dollar. That gap continues to support the carry trade, where traders borrow yen to buy dollars.
This backdrop suggests that derivatives traders may want to consider USD/JPY call options to gain from more upside. For instance, buying April calls with a 162.00 strike would offer exposure to a possible breakout. The benefit is defined risk while still participating in upside momentum.
Still, the risk of intervention by Japanese authorities is now much higher than it was at 155.00. That makes buying volatility more appealing, either as a hedge or as a standalone trade. One approach is a long straddle, which means buying both a call and a put with the same strike and expiry. This can profit from a large move in either direction.
In the weeks ahead, watch inflation data from both countries and any change in central bank messaging. If US inflation starts to cool or the BoJ turns more aggressive, the outlook could change quickly. For now, the easiest path for USD/JPY still appears to be higher.
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