Japan’s housing starts fell by 8.5% year-on-year in November, missing the forecasted growth of 0.4%. This represents a decline in residential construction activity compared to expectations.
In currency markets, USD/CHF is attempting to recover below 0.7900, while EUR/GBP sees minor declines with the Bank of England supporting the pound. The EUR/USD pair continues to face losses, and the pound remains steady amid a low-activity year-end week.
USD JPY Pair Dynamics
The USD/JPY pairs hold above 156.00 following a summary of opinions by the Bank of Japan. Meanwhile, the AUD/USD pair corrects to near 0.6700 but holds firm amid an optimistic outlook for the Reserve Bank of Australia’s stance.
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The sharp 8.5% drop in Japan’s housing starts is a major red flag for the nation’s economy. This data makes it very difficult for the Bank of Japan to consider any hawkish policy moves in early 2026. We should expect yen weakness to be a dominant theme as we head into January.
This housing slump comes as Japan’s latest core inflation for November 2025 cooled slightly to 2.5%, down from the cycle highs we saw back in 2024. With the USD/JPY already holding firm above 156.00, this divergence in economic health strongly supports further upside for the pair. The thin holiday trading volume may be keeping things calm for now, but pressure is building.
Trading Strategies for Derivative Markets
For derivative traders, this points towards buying call options on USD/JPY. This strategy offers a defined-risk way to profit if the yen continues to weaken against a resilient US dollar, which appears to be bouncing as market sentiment sours. Alternatively, long positions in USD/JPY futures could offer a more direct play on this policy divergence.
We saw a similar pattern throughout 2023 and 2024, where disappointing Japanese data consistently pushed the yen lower as rate hike expectations were delayed. This suggests we should also look at shorting the yen against currencies with hawkish central banks, such as the Australian dollar. Options on pairs like AUD/JPY, specifically calls, could be an effective way to trade this.
