USD/JPY traded near 155.95 on Tuesday, up 0.80% on the day. The move followed firmer US data and ongoing weakness in the Japanese Yen.
US consumer confidence rose in February, with the Conference Board’s index at 91.2 versus 89.0 previously (revised). The reading remains below the 112.8 peak seen in November 2024.
Dollar Demand And Trade Risk
The US Dollar Index (DXY) moved towards 98.00 as demand for the dollar picked up. A US Supreme Court decision challenging some tariff measures weighed at first, but a new 15% global levy announced by President Donald Trump added trade worries and supported safe-haven flows.
Federal Open Market Committee minutes showed several Federal Reserve members see more policy easing as premature without clearer progress towards the 2% inflation target. Markets still price in several 25-basis-point cuts this year, which caps the dollar’s medium-term upside.
In Japan, the yen stayed under pressure after reports that Prime Minister Sanae Takaichi raised concerns about further rate rises in a meeting with Bank of Japan Governor Kazuo Ueda. Ueda said no specific policy requests were made, but the discussion increased talk of a slower normalisation path.
BNY, MUFG and Société Générale pointed to political friction, shifting expectations for tightening as early as spring, and a weaker link between rate gaps and USD/JPY. They also indicated that Japan’s growth outlook may matter more for the currency in the near term.
Looking Back And Forward
We remember the situation in early 2025 when political pressure on the Bank of Japan and a rebound in US confidence pushed the dollar-yen pair towards 156. Fast forward to today, February 24, 2026, and that policy divergence has only widened, with the pair now trading near 162.50. This confirms the powerful trend that was already taking shape a year ago.
While markets in 2025 anticipated several Federal Reserve rate cuts, persistent inflation meant only one 25-basis-point cut was delivered late in the year. With the latest January 2026 CPI data coming in at a stubborn 3.2%, expectations for aggressive easing this year are fading. This reality continues to provide a strong foundation for the US dollar.
The concerns we saw in 2025 over political influence on the Bank of Japan’s policy proved to be well-founded. The BoJ only managed a single, hesitant rate hike in mid-2025 before pausing, a move that markets now see as a signal of its limited ability to tighten policy. Governor Ueda’s recent statements continue to emphasize caution, keeping the yen under significant pressure.
Given the pair is trading at multi-decade highs, outright long positions carry risk, but the underlying trend remains powerful. We see traders favoring call options on USD/JPY to capture further upside while limiting downside risk, with strikes around 164.00 for the coming weeks gaining popularity. Implied volatility has recently ticked up to 9.5%, suggesting the market is bracing for a potential breakout or a sharp correction.
At the same time, we must watch for signs of a US slowdown, as the rebound in consumer confidence noted in early 2025 has softened. The latest University of Michigan sentiment reading for February 2026 dipped to 78.5, indicating that high rates are starting to impact households. This makes strategies like call spreads attractive, allowing traders to profit from a continued grind higher while being protected from a sudden reversal.
