USD/JPY slipped to around 154.35 in early Asian trading on Monday. The US Dollar weakened against the Japanese Yen as uncertainty grew over US tariffs. Markets are now focused on the US Producer Price Index (PPI) for January, due on Friday.
Uncertainty increased after a US Supreme Court ruling struck down President Donald Trump’s use of emergency powers to impose reciprocal tariffs. On Saturday, Trump said he would raise the global tariff from 10% to 15% and launch additional investigations.
Japan Inflation And Boj Expectations
In Japan, the National Consumer Price Index (CPI) rose 1.5% year on year in January, down from 2.1% in December. This was the lowest level since March 2022. Core inflation came in at 2% in January, a two-year low and in line with the Bank of Japan’s target.
The softer inflation data lowered expectations for a near-term Bank of Japan rate hike, which can limit Yen gains. After Prime Minister Sanae Takaichi’s snap election win, markets are also watching for possible fiscal spending plans.
Takaichi said any necessary spending would be funded as much as possible through the initial budget. She also said she wants to lower the debt-to-GDP ratio and restore fiscal sustainability.
In early 2025, USD/JPY faced mixed forces. US tariff uncertainty pushed traders toward the safe-haven Yen. At the same time, weaker Japanese inflation reduced expectations for a BoJ rate hike.
How The Backdrop Changed In 2026
Over the past year, that mix has changed a lot. The US tariffs that were threatened were partially put in place in late 2025. This added ongoing volatility to global trade and kept the Yen attractive as a safe haven. As of February 2026, continued trade tension, especially involving Asia, is still supporting this defensive demand for the Yen.
Japan’s inflation trend has also improved from the low point in January 2025. The latest January 2026 data showed national CPI holding at 2.2%. That keeps inflation above the BoJ’s target for several months in a row. This steady pressure led the BoJ to raise its key policy rate to 0.1% in November 2025. That shift remains an important support for the Yen.
This change is also clear in bond yields, which strongly influence the currency pair. The gap between the 10-year US Treasury yield (now about 3.9%) and the 10-year Japanese government bond yield (about 0.9%) has narrowed a lot from its peak. That makes holding Yen more attractive versus the US dollar than it has been in years.
With this backdrop, it may make sense to use strategies that assume limited upside in USD/JPY, which is trading near 148.50. One approach is to sell out-of-the-money USD/JPY call options to collect premium, based on the view that a stronger Yen is more likely. Another approach is to buy JPY call options versus the USD to position directly for further Yen gains, driven by policy differences and risk sentiment.
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