USD/JPY edged up to near 155.00 in early Asian trading on Thursday as the US Dollar rose after hawkish signals in the Federal Reserve’s meeting minutes. Markets are awaiting Japan’s National CPI release on Friday for direction.
The Fed has cut its benchmark rate by three-quarters of a percentage point across reductions in September, October and December, taking the target range to 3.5%–3.75%. Minutes from the January meeting showed officials were split on the rate path, with several indicating that rate rises could be considered.
Japan Political And Fiscal Backdrop
In Japan, Prime Minister Sanae Takaichi’s recent election win has increased expectations of expansionary fiscal measures, including a possible two-year suspension of food sales tax. The IMF warned Japan against such tax cuts to support fiscal stability.
Market pricing points to the next Bank of Japan rate rise most likely in April, with some seeing March as possible if wages and inflation remain firm. Expectations for further BoJ tightening by April or July are seen as supportive for the Yen and a potential drag on USD/JPY.
The Yen is influenced by Japan’s economic performance, BoJ policy, the gap between US and Japanese bond yields, and broader risk appetite. BoJ intervention is infrequent, while its ultra-loose policy from 2013 to 2024 weakened the Yen until a gradual shift in 2024.
Looking back at early 2025, we saw USD/JPY pushing towards 155.00 on the back of hawkish Fed signals and a more cautious Bank of Japan. Today, on February 19, 2026, the pair is trading significantly lower around 148.50 as central bank policies have since diverged from last year’s expectations. This shift reflects the gradual but definite policy tightening that has occurred in Japan over the past twelve months.
Policy Divergence And Trading Implications
The Federal Reserve did cut rates to the 3.50-3.75% range late last year as was discussed. However, US inflation has proven sticky, with the latest Core PCE reading holding above 3%, forcing the Fed into a holding pattern since December 2025. This has prevented a deeper slide in the US dollar and kept it relatively firm against other currencies.
Conversely, the Bank of Japan did deliver on the rate hikes anticipated in 2025, moving its policy rate to 0.25% in two separate increases. This marked a historic shift away from its negative interest rate policy, providing sustained strength to the Japanese Yen. We are now watching for the next signal from the BoJ, which is highly dependent on upcoming economic data.
The key catalyst for traders in the coming weeks will be Japan’s annual “Shunto” spring wage negotiations. Initial reports suggest major unions are demanding wage increases above 5%, a level not seen in decades. A strong wage settlement would almost certainly compel the BoJ to tighten policy further to combat inflation, pushing the Yen higher.
Given this outlook, derivative traders should consider positioning for further Yen strength, which means a lower USD/JPY. Buying USD/JPY put options with April or May 2026 expiries would be a direct way to play a potential post-Shunto rate hike. Using put spreads, which involve buying one put and selling another at a lower strike price, could be a cost-effective way to express this view.
However, we must acknowledge the significant interest rate differential that still exists between the US and Japan. The US 10-year Treasury yield is currently around 4.2%, while the Japanese 10-year bond yield is near 0.9%, creating a powerful incentive for the carry trade which supports the pair. This suggests that while the path of least resistance may be lower for USD/JPY, any declines will likely be met with strong buying interest.
