The US Dollar fell against the Japanese Yen for a second day on Tuesday. USD/JPY traded near one-week lows just above 155.00, after reaching 157.66 on Monday, ahead of the US Retail Sales report for December.
Weak US employment reports last week, plus comments from White House adviser Kevin Hassett about slower job growth in coming months, increased expectations of Federal Reserve rate cuts in 2026. This added pressure on the Dollar.
Dollar Under Pressure
Hassett’s remarks also reduced expectations for the January Nonfarm Payrolls report. The NFP release was delayed until Wednesday because of last week’s partial government shutdown.
US Retail Sales data due later on Tuesday is expected to show a mild slowdown in December. The release, along with Friday’s US Consumer Price Index report, may affect expectations for US monetary policy and near-term Dollar moves.
The Yen held firm after Prime Minister Sanae Takaichi won last weekend’s elections. Her fiscal approach is expected to remain loose, while plans to fund tax cuts without issuing new debt affected reactions.
Japan’s Finance Minister Satsuki Katayama and currency diplomat Atsushi Mimura warned on Monday about immediate action if there is speculative pressure against the Yen. This supported the JPY.
February Policy Outlook
As we have now moved into February 2026, the downward pressure on the US Dollar has intensified. Those weak employment reports from late January were followed by a December 2025 Retail Sales figure that came in at -0.3%, confirming a slowdown in consumer spending. This data has solidified our view that the US economy is cooling faster than previously anticipated.
The delayed January Nonfarm Payrolls report, which was released last Wednesday, added fuel to this fire, printing at just 155,000 jobs against expectations of 190,000. This miss has dramatically shifted expectations for Federal Reserve policy. Looking at derivatives markets, we see the probability of a Fed rate cut at the March 2026 meeting has now surged to over 75%, a significant jump from just a month ago.
On the Japanese side, while Prime Minister Takaichi’s fiscal plans are in focus, the Bank of Japan has remained quiet, maintaining its cautious stance. However, the narrative is now firmly controlled by the Fed’s expected pivot, which is narrowing the interest rate differential that previously favored the dollar. This makes the Yen more attractive on a relative basis, even without a policy change from the BoJ.
For traders, this situation suggests a bearish outlook for the USD/JPY pair, which is now testing support near the 152.50 level. Buying put options with strike prices around 152.00 or 150.00 could offer a way to profit from a continued decline in the coming weeks. We believe these levels are achievable if upcoming US inflation data also shows signs of easing.
Given the recent sharp moves, implied volatility on USD/JPY options has started to pick up. Traders should consider strategies like bear put spreads to manage the cost of buying options while still maintaining downside exposure. Watching for any further verbal intervention from Japanese officials remains important, as it could temporarily slow the pair’s descent.
