USD/JPY slipped to around 153.20 in early Asian trading on Thursday, as the Japanese Yen strengthened above 153.00. The move followed Prime Minister Sanae Takaichi’s landslide election win, while markets waited for Friday’s US CPI inflation report. Traders also bought Japanese equities on hopes for consumer support and new measures to help Japanese firms. That demand lifted the Yen and pushed USD/JPY lower.

Dollar Data Limits Downside

US data helped limit the Dollar’s losses. January Nonfarm Payrolls rose by 130,000, beating the 70,000 forecast. This followed a revised 48,000 gain in December (previously 50,000). The Unemployment Rate dipped to 4.3% in January from 4.4% in December. After the release, markets priced in a 94% chance the Federal Reserve will keep rates unchanged at its next meeting, up from 80% the day before, according to CME FedWatch. Right now, USD/JPY is being pulled in two directions. Optimism around the new Takaichi administration is supporting Japan’s outlook and strengthening the Yen, which drags the pair lower. At the same time, strong US jobs data lowers the odds of a Fed rate cut, which supports the Dollar. This optimism is showing up in market flows. Foreign buying of the Nikkei 225 last week hit its highest level in more than six months. Rising demand for Japanese assets is a key reason the Yen is firming, as traders position for stronger domestic growth under the new leadership.

Options Markets Signal Volatility

On the US side, the surprise 130,000 job gain and the unemployment dip to 4.3% have strengthened the view that the Fed will keep rates steady. CME FedWatch now shows a 94% probability of no change at the next meeting. For derivatives traders, this push-and-pull ahead of Friday’s inflation data points to higher volatility. One-week implied volatility on USD/JPY options has already moved above 12%, the highest since the Bank of Japan policy meetings in late 2025. This suggests the market is preparing for a large move, making swing-focused strategies like straddles more appealing. The US CPI report is the near-term catalyst that could break the stalemate. A hotter-than-expected CPI reading would support a more hawkish Fed outlook and could send USD/JPY sharply higher. A softer CPI print would likely weaken the Dollar and allow the Yen’s political tailwind to push the pair further below 153.00. It is also worth remembering what happened the last time USD/JPY traded around these levels in late 2022, when the Ministry of Finance intervened directly. While the new government’s approach is not yet clear, the history of intervention above the 150–152 area is a major risk for traders betting on continued Yen weakness. This backdrop should be considered when holding long USD/JPY positions. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now