USD/JPY fell in Asian trading on Monday, dropping towards 154.00 before edging back to about 154.35. The pair was still down more than 0.45% on the day and looked open to further falls.
Market mood weakened after US President Donald Trump announced a new global levy of 15% following a Supreme Court verdict on Friday against his wider tariff plan. The move raised fears of retaliation and supply-chain disruption, supporting demand for the Japanese Yen and weighing on the US Dollar.
Policy And Data Driving The Move
US data on Friday showed the PCE Price Index core measure rose more than expected in December, supporting expectations that the Federal Reserve will keep rates unchanged in March. Even so, markets still price in two 25-basis-point cuts this year after US GDP growth slowed to a 1.4% annualised pace in Q4.
In Japan, weak Q4 growth increased pressure for further stimulus, while an inflation gauge slowed to its weakest pace in two years. This reduced expectations of an early Bank of Japan rate rise and limited further Yen gains, with thin trading due to a bank holiday.
Looking back to this time in 2025, we saw a significant risk-off shift that boosted the Japanese Yen due to renewed trade-war fears. This sentiment pushed the USD/JPY pair down towards the 154.00 level as traders sought safety. The market was then pricing in two potential rate cuts from the US Federal Reserve for that year.
Today, on February 23, 2026, the situation has evolved, creating new opportunities. The Fed only delivered one 25-basis-point cut in late 2025, as US inflation has proven sticky, with the latest January 2026 CPI data showing a 2.9% annual rate. Meanwhile, Japan’s core inflation has crept up to 2.3%, increasing pressure on the Bank of Japan to finally begin policy normalization.
This divergence in policy expectations is creating significant tension and has pushed one-month implied volatility for USD/JPY options up near 12%. This suggests the market is bracing for a notable price swing in the coming weeks. Traders should consider strategies that can profit from this expected movement, such as long straddles or strangles, which benefit from a large price move in either direction.
Options Strategies For High Volatility
Conversely, if we believe central banks will remain cautious and keep the pair range-bound, selling premium could be advantageous. An iron condor strategy, for example, would allow traders to define a price range and profit as long as USD/JPY stays within it through expiration. This approach benefits from the high implied volatility by collecting a richer premium upfront.
We should also remember how other safe-haven assets behaved during the 2025 scare. US 10-year Treasury yields, which move opposite to bond prices, dipped below 3.8% during that period of uncertainty. They have since climbed back to around 4.2% as of this week, reflecting the market’s reassessment of the Fed’s path and a more stable global trade outlook.
