Softer US economic data have pushed the US 10-year Treasury yield down to about 4.15%. Fed funds futures now fully price a US rate cut at the June meeting, ahead of US non-farm payrolls data due later today.
The clearest market move has been in USD/JPY, which fell below 155. Broader moves in the US Dollar and overall risk sentiment have been mixed.
Weaker Retail Sales Shifted Rate Cut Expectations
The shift followed a weaker US retail sales report for December, which showed 0% monthly growth. This compared with expectations for a 0.4% month-on-month increase.
The December result came ahead of the holiday season. It was also reported before any effects from an extreme cold winter snap in January appeared in the data.
Looking back to early 2025, we saw how softer US data directly led to the market repricing Federal Reserve rate cuts. A weaker-than-expected retail sales print was enough to push US 10-year Treasury yields lower. This dynamic had the clearest impact on USD/JPY, which fell below the 155 level at the time.
A similar pattern may be emerging now in February 2026. The most recent US Consumer Price Index data for January showed inflation cooling to 2.9%, slightly below expectations and reinforcing the disinflationary trend. Jobless claims have also trended higher over the past month, averaging around 230,000, suggesting the labor market is finally losing some of its tightness.
This has caused Fed funds futures to once again increase the odds of monetary easing, with the market now pricing in a 70% probability of a rate cut by the July 2026 meeting. Just as we observed last year, this shift is putting downward pressure on US bond yields and, consequently, on the USD/JPY exchange rate. The pair is currently struggling to hold above the 151.00 level.
Options Strategies For Potential Usd Jpy Downside
For the coming weeks, this environment favors strategies that profit from a potential drop in USD/JPY. Buying put options on the pair offers a clear way to gain downside exposure. This allows a trader to control a position with a defined and limited risk, which is simply the premium paid for the option.
A specific approach would be to purchase March or April 2026 puts with a strike price around 149.00. With the currency pair’s implied volatility currently sitting at a moderate 9.2%, the cost of these options is not excessively high. This presents a favorable entry point to position for a move lower, driven by the anticipated policy divergence between the Fed and the Bank of Japan.
Alternatively, traders who believe upside is now limited can consider selling a bear call spread. By selling a call option at a strike of 152.50 and simultaneously buying a call at 154.50 for protection, a trader collects a premium. This strategy will be profitable if USD/JPY remains below 152.50 through the option’s expiration, offering a way to generate income from a range-bound or falling market.
