Insights 
VT 
USD/JPY traded near 153.35 in the early Asian session on Thursday. The US Dollar rose against the Japanese Yen after US Treasury Secretary Scott Bessent supported a strong dollar policy. The Federal Reserve held interest rates between 3.5% and 3.75%.
Bessent confirmed the US’s strong dollar stance without currency market intervention. The US Initial Jobless Claims report is anticipated later on Thursday. The Fed maintained interest rates, noting persistent inflation and economic growth. Fed Chair Jerome Powell stated the Fed is prepared to assess data meeting by meeting.
Impact Of Japanese Economic Policies
The Japanese Yen is influenced by Japan’s economy, the Bank of Japan’s policies, US-Japan bond yield differences, and trader sentiment. The BoJ’s past ultra-loose policies weakened the Yen, but policy changes are now bolstering it. The bond yield gap favours the US Dollar; however, recent BoJ stance adjustments are narrowing this gap.
The Japanese Yen serves as a safe haven, attracting investment during market turmoil. Consequently, the Yen strengthens against currencies perceived as riskier. This safe-haven status means market stress can cause investors to favour the Yen for its reliability and stability.
Looking back a year ago, we saw USD/JPY trading firmly above 153 as the US administration advocated for a strong dollar and the Fed held rates steady. That period was defined by a significant interest rate advantage for the dollar. The market sentiment from early 2025 was a peak for dollar strength against the yen.
Since then, the landscape has changed as we anticipated. The Federal Reserve initiated its rate-cutting cycle in the second half of 2025, while the Bank of Japan finally moved away from its ultra-loose policy with two modest rate hikes. This has caused the wide interest rate gap between the US and Japan to begin narrowing.
Current Market Trends
Currently, with USD/JPY hovering around 145.80, the trend reflects this new reality. The most recent US Non-Farm Payrolls report from early January 2026 showed job growth slowing to 165,000, missing expectations and signaling a cooling US economy. This data strengthens the case for further Fed rate cuts in the upcoming meetings.
On the other side, Japan’s latest Tokyo Core CPI data came in at 2.4%, remaining stubbornly above the Bank of Japan’s target. This persistent inflation keeps pressure on the BoJ to consider another rate hike by the second quarter. This divergence in central bank direction is the key driver for the yen’s relative strength.
For derivative traders, this suggests positioning for a continued, gradual decline in USD/JPY in the coming weeks. Buying JPY call options or USD put options could be a direct way to play this view. Using put option spreads on USD/JPY can also be an effective strategy to lower the upfront cost while targeting a move down towards the 142-143 range.
We should also watch implied volatility, which is currently moderate. Ahead of the next Fed decision in March and key US inflation data, volatility may increase, making options more expensive. This could be an opportunity to sell out-of-the-money call spreads on USD/JPY, collecting premium on the expectation the pair will not rally significantly from here.
