USD/JPY rose on Tuesday as the Yen weakened after reports that Prime Minister Sanae Takaichi urged caution on further Bank of Japan rate rises in a meeting with Governor Kazuo Ueda last week. The pair then struggled to add to gains as the US Dollar slipped from its intraday highs.
USD/JPY traded near 155.70 after reaching 156.28, up about 0.64%. The daily chart shows price back above the 100-day simple moving average (SMA) near 155.10, with the 50-day SMA around 156.00 acting as resistance.
Technical Indicators Overview
The Relative Strength Index (RSI) recovered towards 53 after nearing oversold levels earlier this month. Average True Range (ATR) is about 1.30, pointing to elevated but steady volatility.
Support sits at the 100-day SMA around 155.10, and a break below it may expose 154.00. Below 154.00, the 152.00 zone is a key level, while a move above the 50-day SMA could target 157.00 to 157.50.
The Yen’s value is shaped by Japan’s economy, Bank of Japan policy, the Japan–US yield gap, and risk sentiment. The BoJ ran ultra-loose policy from 2013 to 2024, then began to unwind it in 2024 as other central banks cut rates, narrowing the 10-year US–Japan bond yield differential.
The BoJ has sometimes intervened to weaken the Yen, but does so rarely due to political concerns with major trading partners. The Yen is also often treated as a safe-haven currency during market stress.
Policy Divergence And Market Drivers
Looking back to early 2025, we saw hesitation from Japanese officials about aggressive rate hikes, which has largely played out over the last year. The Bank of Japan has only delivered two minor 15-basis-point hikes since then, keeping the policy divergence with the US quite wide. This has allowed the USD/JPY to methodically climb to its current level of around 162.50.
Recent data from this month shows Japan’s core inflation unexpectedly fell to 1.8%, dipping below the BoJ’s 2% target and reducing pressure for further tightening. In contrast, the latest U.S. Non-Farm Payrolls report for January 2026 came in strong at 210,000, reinforcing the Federal Reserve’s decision to pause its rate-cutting cycle. This fundamental backdrop supports a continued grind higher for the currency pair.
For derivative traders, this environment of low but persistent momentum suggests buying long-dated call options is a viable strategy. Implied volatility for one-month USD/JPY options is trading near multi-year lows of around 6.5%, making it relatively cheap to gain exposure to further upside. We see interest in strike prices around the 165.00 level for options expiring in the next three to six months.
However, we must be mindful of intervention risk from Japanese authorities, who have verbally warned against “excessive moves” above the 160.00 mark. To manage this risk, traders could use call spreads to cap potential gains and lower the initial cost, or they could buy cheap out-of-the-money puts as a hedge against a sudden, sharp reversal. Historical interventions, such as those we saw in 2022 and 2024, tended to follow rapid spikes in the exchange rate rather than the current gradual ascent.
