The USD/JPY currency pair is on the rise, trading above 152.50 due to fiscal concerns in Japan. This increase happens during the early Asian session as the US Dollar strengthens against the Japanese Yen amid a continuing US government shutdown. The US Senate’s inability to pass funding proposals has stretched the shutdown into its ninth day. The absence of recent US economic data has further bolstered the Dollar’s value. Recent minutes from the Federal Reserve’s September meeting suggest possible rate cuts, leading to a cautiously dovish outlook that may impact the USD in the short term.

Japan’s Economic Developments

In Japan, Sanae Takaichi has been elected as the leader of the ruling Liberal Democratic Party, raising hopes for increased fiscal spending. As a result, traders are lowering expectations for a rate hike by the Bank of Japan (BoJ). Several factors affect the Yen, including Japan’s economic performance, decisions from the BoJ, the yield difference between Japan and US bonds, and overall risk sentiment. Currently, the market sees only a 26% chance of a rate increase from the BoJ at its next meeting, down from nearly 60% before Takaichi’s election. Looking back, when USD/JPY exceeded 152.50, fears about Japan’s fiscal policy and a passive BoJ played a big role. At that time, even a US government shutdown couldn’t weaken the dollar against the yen. The market focus was solely on yen weakness, overlooking other issues. This situation has changed dramatically as we enter October 2025. The BoJ concluded its negative interest rate policy in 2024 after inflation stayed above 2% for more than two years. The latest nationwide core CPI for September 2025 is 2.7%, indicating ongoing pressure for policy adjustments.

US and Japan Interest Rate Dynamics

Despite these developments, the interest rate gap between the US and Japan is still substantial, preventing the yen from gaining strength. The Federal Reserve’s key rate stands at 4.75%, while the BoJ’s overnight call rate is just 0.10%. This significant difference makes holding dollars more appealing than holding yen. However, attention is turning back to the US economy’s health. Recent data, including the September 2025 jobs report that showed Non-Farm Payrolls grew by only 95,000, raises expectations that the Fed may need to cut rates in early 2026. This marks a shift from previous trends where weak US data was often overlooked. Considering this new landscape, traders might want to plan for potential yen strength in the upcoming weeks. Buying USD/JPY put options is a way to profit if the dollar-yen exchange rate falls while limiting risk in case the pair rises unexpectedly. Options expiring in December 2025 with a strike price around 145.00 could provide a good risk-to-reward balance. This approach considers the increasing likelihood that the BoJ might hint at a small rate hike while the Fed leans towards a more dovish stance. Given the high volatility, outright shorting the currency pair may be risky. Using options allows for defined and capped potential losses as these two central bank policies begin to move in different directions. Create your live VT Markets account and start trading now.

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