The Japanese Yen is still weakening against the US Dollar, now on a six-day losing streak. The USD/JPY pair has settled around 153.00 after a bumpy session where it briefly dropped to 152.11 before bouncing back. Political uncertainties in Japan and Europe are making the US Dollar more attractive. The US Dollar Index is close to a two-month high at 99.50, up about 1.8% this week.

Japanese Political Landscape

Japan’s politics can greatly impact currency trends. Sanae Takaichi, expected to become Prime Minister, is talking about cooperation between the government and the Bank of Japan (BoJ). Takaichi emphasizes the importance of the BoJ’s role in monetary policy, stating that its decisions should match government objectives. Although she doesn’t want a much weaker Yen, she does not signal an immediate interest rate hike or changes in monetary agreements. Instead, she supports inflation driven by demand despite current pressures being cost-related. In the US, a lengthy government shutdown is clouding economic predictions. The shutdown is now into its ninth day, risking more delays in economic data. The labor market is showing signs of cooling down, and an extended shutdown could negatively impact employment and business outlook. This could lead the Federal Reserve (Fed) to cut rates further to support economic growth. With new leadership at the Bank of Japan hinting that rate hikes will be delayed, the interest rate gap between the US and Japan will likely stay large. The USD/JPY pair is expected to trend higher, especially since Japan’s core inflation was reported at 2.5% for September 2025, seen as the wrong kind of inflation. This policy difference strongly supports a bullish view for this currency pair. For those expecting the Yen to weaken further, buying USD/JPY call options with strike prices around 154.00 and 155.00 could be a way to gain from potential upward movement in the coming weeks. This strategy limits downside risk to the cost of the options, which is important given the current political uncertainties. It’s a way to invest while the trend continues.

Potential Risks and Strategies

However, caution is needed as the USD/JPY pair approaches levels that have led to intervention in the past. There were sharp drops in late 2022 when authorities intervened, and now that the pair is above 153.00, officials may issue verbal warnings. Traders should think about using stop-loss orders on long positions or options to manage potential losses. On the other hand, the US government shutdown poses a notable risk for the dollar. Recent non-farm payroll data from early October 2025 showed a weak increase of just 95,000 jobs, suggesting the Fed may need to cut rates sooner. If the shutdown continues, economic data could worsen, pushing the Fed to pivot even more dovishly. Given these conflicting factors, increased volatility is expected. Traders who anticipate a significant price swing but are unsure of the direction might consider buying straddles, which involve purchasing both a call and a put option at the same strike price. This strategy profits from large price movements in either direction, taking advantage of the current market tension. Create your live VT Markets account and start trading now.

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