The US Dollar is losing ground, partly because of rising diplomatic tensions between the US and the EU. Disputes over Greenland and threats of tariffs from the US are shaking confidence in American assets. USD/JPY is trading around 157.90, down 0.10%. The US Dollar is facing pressure against other major currencies. This drop comes from the growing concerns about Greenland’s sovereignty and tariff threats aimed at Europe.

US Dollar Index Shows Reduced Confidence

The US Dollar Index is lower, hovering around 98.50, indicating less confidence in the dollar. There’s a close watch on the legal aspects of US tariffs as the US Supreme Court’s decision is still pending. The Japanese Yen isn’t benefiting much from the weakness of the US Dollar. Reports about Japan’s Prime Minister calling for a snap election and possible changes in fiscal policy are limiting the Yen’s strength. Focus is now on the Bank of Japan’s upcoming monetary policy decision, as USD/JPY closely follows global risk sentiment and policy expectations in this tense environment. The US Dollar was strong against the Japanese Yen. A heat map shows its position against major currencies, highlighting the percentage changes in those pairs during recent market activity.

Market Changes in January 2026

The market in January 2026 looks very different from last year. The focus has shifted away from US-EU diplomatic disputes and tariff threats that pressured the dollar. Now, the main factor is the growing gap between a tough Federal Reserve and a consistently lenient Bank of Japan. Last year’s situation, where Japanese fiscal stimulus plans limited Yen strength, has now played out, keeping the currency weak. Recent US inflation data from December 2025 showed a stubborn rise of 2.8%, supporting the Fed’s stance on higher interest rates for a longer time. Meanwhile, Japan’s Q4 2025 GDP showed only modest growth, giving the Bank of Japan no reason to change its loose policy. For derivative traders, this suggests that the USD/JPY is likely to rise further. The pair has climbed from the 157s during last year’s political turmoil to over 162.00 today. One-month implied volatility has declined from over 12% during those tensions to a calmer 8.5% now. This makes buying long-dated call options aimed at reaching 165.00 a cheaper way to seek potential upside. A key support level to monitor is around 160.00, a psychological barrier that was tested and crossed in late 2025. As long as we stay above this level, selling out-of-the-money put options with strikes near 159.50 could be a good way to earn premium. We should keep a close eye on the upcoming US jobs report, as any signs of a weaker labor market could quickly reverse the dollar’s strength. Create your live VT Markets account and start trading now.

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