USD/JPY fell for a fourth straight day on Thursday. The Yen strengthened, pushing the pair toward 152.80. This move puts USD/JPY down about 2.75% for the week.
The Yen stayed supported after Prime Minister Sanae Takaichi won Japan’s general election last Sunday. Markets are also factoring in the chance that the Bank of Japan could raise rates as soon as March or April.
Japan Political And Policy Backdrop
Traders stayed cautious because officials have repeatedly warned about possible action in the currency market. Currency diplomat Atsushi Mimura said authorities are “on high alert” for excessive FX volatility. He added they are watching moves closely, acting with urgency, and staying in contact with US officials.
The US Dollar also weakened. The Dollar Index was near 96.95, close to a two-week low. US data showed Initial Jobless Claims at 227K versus 232K previously, which was above the 222K forecast. Continuing Claims came in at 1.862M versus 1.841M.
January Nonfarm Payrolls rose by 130K, beating the 70K forecast. The Unemployment Rate edged down to 4.3% from 4.4%. Focus now shifts to Friday’s US CPI report, with markets pricing about 50 bps of easing by year-end.
After this week’s sharp 2.75% drop to around 152.80, further Yen strength looks likely. The new government’s agenda, along with the Bank of Japan’s more hawkish tone, gives the market a clear reason to expect a lower USD/JPY. One-month implied volatility has jumped to 11.5%, up from around 8% through much of late 2025. This suggests traders are preparing for larger swings.
Options Positioning Ahead Of CPI
With the key US Consumer Price Index report close, holding outright short positions can be risky. A hotter inflation print could trigger a sharp rebound higher. A more careful approach is to buy USD/JPY put options. This keeps downside exposure while limiting risk to the premium paid. We are watching March and April expirations with strike prices near the 150.00 psychological level, aiming to position for another break lower.
The risk of Japanese currency intervention adds major event risk and could cause a sudden, large move. A similar setup appeared in late 2024, when intervention fears drove a multi-figure drop within hours. Because of this, a long straddle—buying both a call and a put—can be a sensible way to benefit from a big move in either direction after the CPI release or any official action.
Over the longer term, the key driver remains the policy gap between central banks. Futures markets now price a 90% chance of a 10-basis-point Bank of Japan hike by April. By contrast, Fed funds futures still show a 75% chance of a 25-basis-point Federal Reserve cut by June. This difference continues to support downside pressure on USD/JPY in the months ahead.
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