The US Dollar is around 152.50, close to its three-month low of 152.15. Recent comments have increased pressure on the Dollar, with traders waiting for the Federal Reserve’s next move. USD/JPY is trading below 153.00, currently at 152.45, as the Yen strengthens despite a slight recovery of the Dollar. The Fed is likely to keep rates steady, but there’s growing interest in future policies as Chairman Powell’s term ends in May.

Impact of Joint Intervention Rumors

Since last Friday, the US Dollar has dropped more than 4% against the Yen due to worries about a possible joint intervention by the Fed and Bank of Japan to support the Yen. This speculation prompted traders to cut back on USD short positions, especially after positive comments about a weaker Dollar. Minutes from Japan’s BoJ confirmed that they are committed to gradually tightening monetary policy, seeing trends in inflation and wage growth as stable. This has helped ease worries about Japan’s financial health, boosting the Yen. Interest rates play a key role in borrowing costs and savings, which in turn affect currency attractiveness and Gold prices. The Fed funds rate is a major indicator that influences market expectations and financial market behavior. Higher interest rates typically attract foreign investment, making the currency more valuable. However, high interest rates can lower Gold prices because of the higher opportunity costs of holding non-yielding assets.

Memory of the 2025 Dip

In 2025, the USD/JPY pair faced significant pressure, dropping below 153.00. Political discussions and fears of coordinated intervention to support the Yen created major uncertainty. This period showed how quickly market sentiment can shift, even with favorable interest rate differences. Now, in late January 2026, the situation has evolved, making the memory of last year’s dip a crucial risk factor. The Fed Funds Rate has remained at 5.25% after the Q4 2025 inflation data revealed a persistent 3.1% annual increase. Meanwhile, the Bank of Japan has only implemented one small rate hike to 0.10%. This large interest rate gap has driven USD/JPY back up to 158.50, showing a strong incentive to buy Dollars. However, the memory of last year’s sharp decline has left traders cautious about potential official intervention. This is reflected in the options market, where the premium for puts that protect against a sudden drop in USD/JPY is higher than usual. This indicates that traders expect a possible intervention by Japanese authorities to support their currency. For derivative traders, this environment makes holding a long position risky. A more effective strategy might be to sell out-of-the-money JPY call options to gather premium, taking advantage of the belief that intervention fears will limit the pair’s upside near the crucial 160.00 level. This approach benefits from time decay and high volatility without needing a significant upward price movement. Looking ahead, the upcoming US non-farm payrolls report will be important for shaping Fed expectations. A strong jobs report, similar to the over 210,000 jobs added late last year, could reinforce the belief that US rates will stay high for a while. This would further support the Dollar and challenge the Bank of Japan’s stance. Create your live VT Markets account and start trading now.

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