USD/JPY rose about 0.7% on Tuesday to around 155.86, mainly due to yen weakness. Since late January, it has traded in a broad 152.00–157.00 range. Last week, it dipped toward 153.00 before bouncing. Mainichi Shimbun reported that Prime Minister Sanae Takaichi voiced concerns about further Bank of Japan rate hikes during a 16 February meeting with Governor Kazuo Ueda. Before that report, a Reuters poll showed most economists expected the policy rate to reach 1% by end-June, and markets were pricing about a 70% chance of a hike by April.

Policy Uncertainty And Rate Expectations

Inflation excluding fresh food and energy was still 2.6%. Even so, the report added uncertainty about when the BoJ might tighten policy. In the US, the Federal Reserve kept rates at 3.50% to 3.75% in January. The meeting minutes showed several officials discussed the risk of further hikes if inflation stays above target. US consumer confidence rose to 91.2 in February, but the expectations index has stayed below 80 for 13 straight months. The report also mentioned new 15% global tariffs following a Supreme Court ruling. On the technical side, USD/JPY moved back above the 50-day EMA near 155.30. The 200-day EMA, rising around 152.70, remains an important longer-term support level. The January peak was near 159.450. Key levels mentioned include 157.00, 158.000, 153.00, and the 152.100 low. Looking back to early 2025, the setup supported a stronger dollar versus the yen. Political pressure from Prime Minister Takaichi pointed to a more dovish Bank of Japan, while the Federal Reserve was still signaling that rate hikes were possible. That policy gap was the main reason USD/JPY climbed toward the top of its 152–157 range. Still, Takaichi’s influence only slowed the process. Inflation stayed persistent, and the BoJ tightened later in the year. With Japan’s core inflation holding above 2.3% through Q3 2025, the BoJ delivered a widely expected 15-basis-point hike in November, lifting the policy rate to 0.25%. While small, the move signaled that the period of extreme easing was ending.

Shift In Central Bank Divergence

Meanwhile, the Fed’s early-2025 hawkish tone faded as US data weakened. By late 2025, US core PCE inflation cooled to 2.5% annualized. The labor market also softened, with unemployment rising to 4.2%. As a result, the market shifted from pricing more hikes to debating when the first rate cuts would arrive in 2026. This shift reduced the policy gap that had supported USD/JPY. The rally stalled below 158.00 in mid-2025 and then started to trend lower. The wide 152–157 range seen earlier eventually broke to the downside, and the pair has traded mostly between 147 and 151 in recent months. In short, the forces that once supported USD buying have reversed. Given this backdrop, the near-term approach is to sell into meaningful rallies. The 152.00–153.00 area, which acted as strong support through 2025, now looks like a major resistance zone. One way to express that view is with derivatives, such as buying put options or using bear call spreads when the pair moves back toward that zone. Markets are now pricing more than 75 basis points of Fed cuts by the end of 2026. In contrast, expectations for the BoJ point to at least one more small hike this year. Implied volatility for USD/JPY options has dropped from its 2025 highs, which makes downside positioning cheaper. The story is no longer divergence favoring the dollar, but convergence favoring the yen. Create your live VT Markets account and start trading now.

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