USD/JPY was around 153.35 in the early Asian session on Thursday. The US Dollar strengthened against the Japanese Yen after US Treasury Secretary Scott Bessent backed a strong dollar policy. The Federal Reserve kept interest rates between 3.5% and 3.75%. Bessent reaffirmed the US’s commitment to a strong dollar without intervening in the currency market. Later on Thursday, the US Initial Jobless Claims report is expected. The Fed held interest rates steady, citing ongoing inflation and economic growth. Fed Chair Jerome Powell mentioned that the Fed is ready to review data from meeting to meeting.

Impact Of Japanese Economic Policies

The Japanese Yen is affected by Japan’s economy, the Bank of Japan’s (BoJ) policies, differences in US-Japan bond yields, and trader sentiment. The BoJ’s past very loose policies weakened the Yen, but recent changes are helping it strengthen. Although the bond yield gap favors the US Dollar, adjustments made by the BoJ are closing this gap. The Japanese Yen is considered a safe haven, attracting investments during uncertain times. As a result, it tends to gain against riskier currencies. This safe-haven status means that during market stress, investors often turn to the Yen for its reliability and stability. A year ago, USD/JPY was firmly above 153 as the US government promoted a strong dollar and the Fed kept rates steady. During that time, the dollar had a significant interest rate advantage. Early 2025 marked the peak of dollar strength against the Yen. Since then, changes have happened as expected. The Federal Reserve began its rate-cutting cycle in the second half of 2025, while the Bank of Japan started to move away from its very loose policy with two small rate hikes. This has started to reduce the large interest rate gap between the US and Japan.

Current Market Trends

At the moment, USD/JPY is around 145.80, reflecting this new reality. The latest US Non-Farm Payrolls report from early January 2026 showed job growth slowing to 165,000, which was below expectations and indicates a cooling US economy. This data supports the idea of more Fed rate cuts in upcoming meetings. On the other hand, Japan’s recent Tokyo Core CPI data was 2.4%, remaining above the BoJ’s target. This ongoing inflation puts pressure on the BoJ to consider another rate hike by the second quarter. The differing directions of the central banks are key for the Yen’s relative strength. For derivative traders, this suggests planning for a slow, gradual decline in USD/JPY over the coming weeks. Buying JPY call options or USD put options could be a straightforward way to act on this view. Using put option spreads on USD/JPY can also be a useful strategy to lower costs while aiming for a move towards the 142-143 range. We should also monitor implied volatility, which is currently moderate. As we approach the next Fed decision in March and important US inflation data, volatility may rise, making options pricier. This could be a chance to sell out-of-the-money call spreads on USD/JPY, collecting premiums with the expectation that the pair will not increase significantly from this point. Create your live VT Markets account and start trading now.

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