USD/JPY trades near 154.40 on Tuesday, down 0.95% on the day. The pair stays under pressure as the US Dollar weakens, while the Japanese Yen gains support from politics and official comments.
US consumption data point to softer demand. December Retail Sales are 0% month-on-month versus a 0.4% forecast, and 2.4% year-on-year versus 3.3% previously.
Retail Sales Detail And Market Implications
The Retail Sales control group drops 0.1% month-on-month after a 0.2% rise in November. Retail Sales excluding autos are also 0.0% on the month, below expectations.
Labour indicators are mixed. The Employment Cost Index slows to 0.7% in Q4 from 0.8%, while the four-week average of ADP Employment Change edges up but stays modest.
The US Dollar Index trades near a more than one-week low, extending a third straight session of declines. Markets price about 50 basis points of rate cuts, with Nonfarm Payrolls due Wednesday and CPI on Friday.
In Japan, political risk eases after Prime Minister Sanae Takaichi’s Liberal Democratic Party wins 316 of 465 lower-house seats. Plans to fund tax cuts without adding public debt reduce concerns about fiscal slippage.
BoJ Outlook And Yen Support
Japanese officials repeat they are ready to act against excessive currency moves. HSBC keeps a base case for a 25-basis-point BoJ rate rise in July, with risks of an earlier or extra move.
Given the sharp drop in USD/JPY we saw late last year, the pair continues to test lower, trading around 149.50 as of today, February 11, 2026. The dollar’s weakness has deepened following the disappointing retail sales figures from December 2025. This trend was cemented by the soft economic data released since the start of this year.
The US economic slowdown is becoming more apparent, which should guide our strategy. January’s Nonfarm Payrolls report showed a gain of only 135,000 jobs, well below forecasts, and the latest Consumer Price Index (CPI) reading showed core inflation cooling to a 2.9% annual rate. These figures confirm the disinflationary trend and slowing labor market we began to see in the fourth quarter of 2025.
Consequently, futures markets are now pricing in a 90% probability of a 25-basis-point rate cut from the Federal Reserve at its March meeting. Traders should consider positioning for lower US interest rates through options on SOFR futures. Selling out-of-the-money calls on the US Dollar Index (DXY) could also be an effective strategy to capitalize on further greenback weakness.
On the other side of the trade, the narrative in Japan is firming up. Following Prime Minister Takaichi’s solid election victory last year, market focus has shifted entirely to the Bank of Japan’s next move. Japan’s national core CPI for January, released last week, unexpectedly rose to 2.8%, fueling speculation that the BoJ will act sooner than the July timeframe we previously anticipated.
This has caused a significant shift in expectations for Japanese monetary policy. Derivative markets now indicate a greater than 50% chance of a rate hike by the BoJ’s April meeting, a dramatic change from just a few months ago. This makes long JPY positions attractive, either directly or through buying puts on USD/JPY with expirations in the second quarter.
The clear policy divergence between a dovish Fed and a hawkish BoJ is increasing currency market volatility. We saw implied volatility on USD/JPY options rise to its highest level in over a year this past week, a situation reminiscent of the opposite scenario in 2022 when Fed hikes drove the pair to multi-decade highs. Managing risk with well-defined option strategies will be critical in this environment.
