During early trading on Thursday, the US Dollar-Yen pair tried to recover, reaching 155.50. However, it then continued to fall in the European session, hitting a low of 154.50. The Bank of Japan Governor indicated a move towards tightening monetary policy soon but was unsure about how much rates would rise. The US Dollar is feeling pressure as the market expects a possible rate cut from the Federal Reserve next week. Recent ADP employment data showed an unexpected drop, increasing urgency for the Fed to adjust its policy. Later today, US jobless claims are expected to support the argument for easing policy. However, all eyes are on the upcoming US Personal Consumption Expenditures prices index. There is speculation that economic advisor Kevin Hassett might replace Jerome Powell as Fed Chair, which adds to expectations of looser monetary policy. The Bank of Japan has maintained an ultra-loose monetary policy since 2013, which has devalued the Yen, especially compared to other central banks. In 2024, rising inflation due to a weaker Yen and global energy prices led the BoJ to ease some of its policies after inflation exceeded their target, mainly due to wage increases in Japan. The US Dollar is clearly losing ground against the Yen, dropping below 154.65 to reach new lows. This downward trend is driven by fundamental changes in central bank policies, and it looks set to continue in the coming weeks. The market strongly anticipates a Federal Reserve rate cut at their meeting next week, further supported by the recent ADP report showing a net loss of 15,000 private sector jobs in November 2025, which was unexpected. Additionally, this morning’s data indicated jobless claims rose to 235,000, the highest in three months, solidifying the outlook for a rate cut. In contrast, the Bank of Japan is headed in the opposite direction, leading to significant policy divergence. Governor Ueda’s recent remarks confirm a commitment to tightening, as Japan’s core inflation has remained above the 2% target for twenty months straight as of October 2025. This is a sharp contrast to the policies that weakened the Yen in 2022 and 2023. Given this situation, we suggest that traders explore options that take advantage of a lower USD/JPY rate, such as buying put options. These can provide downside exposure while managing risk ahead of tomorrow’s delayed US PCE inflation report. A surprise in that data could lead to a short-term spike, making defined-risk strategies wise. Looking ahead to 2026, potential changes in Fed leadership contribute to a long-term bearish outlook for the dollar. Rumors about a more dovish successor to Jerome Powell imply that any strength in the dollar may be brief. This strengthens the case for maintaining short USD/JPY positions through futures or longer-dated options.

here to set up a live account on VT Markets now