The US Dollar fell against the Japanese Yen for a second straight day on Tuesday. USD/JPY traded near one-week lows, just above 155.00, after hitting 157.66 on Monday. Traders were waiting for the US Retail Sales report for December. Weak US employment data last week, plus comments from White House adviser Kevin Hassett about slower job growth in the coming months, increased expectations of Federal Reserve rate cuts in 2026. This put more pressure on the Dollar.

Dollar Under Pressure

Hassett’s comments also lowered expectations for the January Nonfarm Payrolls report. The NFP release was delayed until Wednesday because of last week’s partial government shutdown. US Retail Sales data due later on Tuesday is expected to show a small slowdown in December. This release, along with Friday’s US Consumer Price Index report, could shift expectations for US monetary policy and drive near-term moves in the Dollar. The Yen stayed firm after Prime Minister Sanae Takaichi won last weekend’s election. Her fiscal policy is expected to remain loose. However, plans to fund tax cuts without issuing new debt shaped market reactions. Japan’s Finance Minister Satsuki Katayama and currency diplomat Atsushi Mimura warned on Monday that they could act quickly if speculation puts pressure on the Yen. These comments supported the JPY.

February Policy Outlook

Now that we are in February 2026, pressure on the US Dollar has increased. The weak employment reports from late January were followed by a December 2025 Retail Sales reading of -0.3%. This confirmed softer consumer spending. Taken together, the data supports the view that the US economy is cooling faster than expected. The delayed January Nonfarm Payrolls report, released last Wednesday, added to that view. It showed 155,000 new jobs versus forecasts of 190,000. The miss has pushed markets to expect easier Fed policy. In derivatives markets, the probability of a Fed rate cut at the March 2026 meeting has risen to over 75%, up sharply from a month ago. In Japan, Prime Minister Takaichi’s fiscal plans remain in focus. The Bank of Japan has stayed quiet and kept a cautious tone. Still, the main driver is the expected Fed pivot, which is shrinking the rate gap that previously favored the Dollar. That makes the Yen more attractive even if the BoJ does not change policy. For traders, this points to a bearish outlook for USD/JPY, which is now testing support near 152.50. Buying put options with strike prices near 152.00 or 150.00 could be one way to benefit if the pair keeps falling in the weeks ahead. These levels may be reachable if upcoming US inflation data also cools. Because of the recent sharp swings, implied volatility in USD/JPY options has started to rise. Traders may want to use strategies such as bear put spreads to reduce the cost of buying options while keeping downside exposure. It is also important to watch for more verbal intervention from Japanese officials, as it could briefly slow the decline. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now