The Japanese Yen is weakening against the US Dollar as strong US economic data boosts the USD/JPY pair. Currently, USD/JPY is trading around 157.00, marking its third day of gains. US Department of Labor data shows that Initial Jobless Claims rose to 208,000, which is lower than the expected 210,000. Continuing Claims increased to 1.914 million. The four-week moving average for Initial Claims fell to 211,750, indicating a strong US labor market.

Trade Balance And US Dollar Index

The US Dollar is also supported by improvements in the trade balance. The Goods and Services Trade deficit has narrowed to $29.4 billion, far below the expected $58.9 billion. This is the smallest deficit since June 2009, thanks to increased exports and decreased imports. The US Dollar Index is near one-month highs at 98.80, supported by rising US Treasury yields. Markets see lower risks of a slowdown in the US labor market, suggesting the Federal Reserve may keep interest rates steady at its January meeting. In Japan, the Yen is under additional pressure due to China’s restrictions on dual-use exports and an investigation into dichlorosilane imports. Wage growth in Japan remained weak in November, with only a 0.5% year-on-year increase.

Outlook For USD/JPY

Back in early 2025, the USD/JPY pair was around 157.00, driven by a strong US labor market and a weak Yen. This trend continued throughout the year, as the interest rate gap between the US and Japan kept the Yen under pressure. Later in 2025, the pair reached multi-decade highs. As of today, January 8, 2026, the trend of US economic strength continues, making the outlook complex. The latest Nonfarm Payrolls report for December 2025, released last Friday, revealed that the economy added a surprisingly strong 216,000 jobs, with unemployment steady at 3.7%. This suggests the Federal Reserve, which cut rates twice in the second half of 2025, has little reason to ease further. For traders, this indicates a likely period of stability in US interest rates, which could reduce volatility. This environment makes selling options appealing. Traders might consider strategies like selling short-dated strangles on SOFR futures to profit from a lack of drastic rate changes, aligning with the current strong economic data. On the Japanese side, the situation has slightly improved since the weak wage data in late 2024. The Bank of Japan exited its negative interest rate policy in late 2025, a significant move, but has been cautious about signaling further rate hikes. Recent wage growth figures from Japan show a modest 1.5% increase—better, but not enough for aggressive policy tightening. This caution from the Bank of Japan, combined with the high USD/JPY rate around 160.75, creates a risk imbalance. Traders could consider buying inexpensive, out-of-the-money put options on USD/JPY. This approach offers a low-cost, defined-risk opportunity to prepare for a surprise intervention or a more aggressive policy shift from Japanese officials, which might strengthen the Yen. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now