Softer US economic data have pushed the US 10-year Treasury yield down to around 4.15%. Fed funds futures now fully price a US rate cut at the June meeting, ahead of US non-farm payrolls data due later today.
The clearest market move has been in USD/JPY, which has fallen below 155. Moves in the broader US Dollar and overall risk sentiment have been mixed.
Weaker Retail Sales Shifted Rate Cut Expectations
The shift followed a weaker US retail sales report for December, which showed 0% monthly growth. That compares with expectations for a 0.4% month-on-month increase.
The December figure came ahead of the holiday season. It was also released before any impact from January’s extreme cold snap showed up in the data.
Looking back to early 2025, softer US data led markets to reprice Federal Reserve rate cuts. A weaker-than-expected retail sales print pushed US 10-year Treasury yields lower. The clearest impact was in USD/JPY, which fell below 155 at the time.
A similar pattern may now be emerging in February 2026. The latest US Consumer Price Index data for January showed inflation cooling to 2.9%, slightly below expectations and consistent with the broader disinflation trend. Jobless claims have also moved higher over the past month, averaging around 230,000, which suggests the labor market is starting to loosen.
As a result, Fed funds futures have again increased the odds of monetary easing. The market is now pricing a 70% chance of a rate cut by the July 2026 meeting. As we saw last year, that shift is weighing on US bond yields and, in turn, on USD/JPY. The pair is currently struggling to hold above 151.00.
Options Strategies For Potential Usd Jpy Downside
Over the coming weeks, this setup favors strategies that benefit from a potential drop in USD/JPY. One straightforward approach is buying put options on the pair. This provides downside exposure with defined, limited risk—the premium paid for the option.
One specific approach is to buy March or April 2026 puts with a strike near 149.00. With implied volatility at a moderate 9.2%, option costs are not especially high. This can offer a reasonable entry point to position for a move lower, driven by expected policy divergence between the Fed and the Bank of Japan.
Alternatively, traders who think upside is now limited could consider a bear call spread. This involves selling a call at 152.50 and buying a call at 154.50 for protection. The trader collects a premium, and the strategy is profitable if USD/JPY stays below 152.50 through expiration. It can generate income in a range-bound or falling market.
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