USD/JPY rose for a second day, reaching about 155.35 on Thursday, its highest level in over a week. It later eased slightly in early European trade but stayed just above 155.00, up nearly 0.20% on the day.
Japan’s weak fourth-quarter GDP growth has increased pressure for further stimulus measures. The IMF warned that cutting the consumption tax could reduce fiscal space and increase debt risks, which has weighed on the safe-haven yen alongside a generally positive risk tone.
Fed Policy Split Supports Dollar
The US dollar has remained supported after the January FOMC minutes showed policymakers split on when to cut rates. Some officials said cuts could be needed if inflation falls as expected, while others warned that easing too soon could threaten the 2% inflation target.
Markets still price in three 25 basis point Federal Reserve cuts this year. This contrasts with expectations that the Bank of Japan will continue its policy normalisation path, while renewed geopolitical tensions have limited yen declines.
Traders are watching upcoming US data, with attention on Japan and US inflation figures due on Friday. A correction noted that the dollar index rose on Wednesday after a less dovish Fed, not a hawkish one.
We are seeing a familiar pattern in the USD/JPY, much like the situation back in February of 2025. The pair is again testing major resistance levels as a strong dollar theme dominates the market. This renewed push higher is creating opportunities but also carries significant risk.
Options Strategies For USDJPY
The Japanese Yen is being undermined by renewed concerns over the government’s fiscal health and slow economic growth. We saw Japan’s Q4 2025 GDP figures last week show a surprising 0.4% contraction, echoing the weakness from the previous year. This puts the Bank of Japan in a difficult position, making it less likely to pursue aggressive rate hikes despite core inflation holding at 2.3%.
Meanwhile, the US Dollar is finding support from a Federal Reserve that is hesitant to cut rates further. January’s CPI data this year came in hotter than expected at 2.9%, reinforcing the central bank’s cautious stance. This contrasts with market expectations from late last year, which had priced in at least two more cuts by mid-2026.
For derivative traders, this environment suggests buying call options on USD/JPY to capitalize on the current upward momentum. However, given the potential for sharp reversals, using a call spread strategy would be a more prudent way to limit costs and define risk. This allows traders to profit from a continued, but measured, rise toward the 160.00 level.
The main risk remains the divergence between central bank policies, similar to what we observed in 2025. The Bank of Japan has a history of surprising the market, and any hawkish shift could cause the yen to strengthen rapidly. Therefore, traders should also consider buying long-dated puts or establishing straddles ahead of the next BoJ policy meeting to hedge against or profit from a sudden downward move.
Key inflation data from both countries in the coming weeks will be the main catalyst. The upcoming U.S. Personal Consumption Expenditures (PCE) Price Index and Tokyo’s CPI will be critical for setting the pair’s direction. We expect significant volatility around these releases, creating ideal conditions for options strategies that profit from price swings.
