The USD/JPY pair is trying to rise above the weekly high of 152.17 but is facing challenges in continuing its upward trend. Japan is set to introduce a fiscal stimulus package, likely over 13.9 trillion yen, to support households during ongoing inflation. Despite a four-day winning streak, the pair struggles to maintain momentum. There are expectations that Prime Minister Sanae Takaichi may adopt economic policies similar to those of former Prime Minister Shinzo Abe. A recent poll shows that 60% of economists believe the Bank of Japan will raise rates by 25 basis points this quarter.

The Strength of the US Dollar

The US Dollar remains strong amid reduced trade tensions with China, with the US Dollar Index nearing 99.10. Attention is now on the US Consumer Price Index (CPI) data for September, which is expected to significantly affect views on the Federal Reserve’s monetary policy. The value of the Japanese Yen depends on several factors, including the Bank of Japan’s monetary policy, the difference in bond yields between Japan and the US, and traders’ risk sentiment. The BoJ’s recent policy adjustments aim to reduce the bond yield gap with the US, impacting the Yen’s performance. Because the Yen is considered a safe-haven asset, it tends to gain value during market uncertainties as investors seek its stability.

Current Market Conditions and Strategies

The USD/JPY pair is currently at the 152.17 level, a major resistance point. The upcoming US Consumer Price Index (CPI) data will play a significant role in determining the Federal Reserve’s next steps. This leads to a tense situation, especially with a potentially more aggressive stance from the Bank of Japan. This week’s focus is on delayed US inflation data for September, which could create volatility. Last month, the core CPI was stubbornly at 0.3% month-over-month. Any figure at or above this could strengthen expectations that the Fed will keep rates higher for longer. However, if the inflation data is softer, the pair could experience a sharp sell-off. On the other hand, the Bank of Japan is also in focus, as most economists now predict a rate hike this quarter. This is a major policy change from the ultra-loose stance seen until 2024. A confirmed move by the BoJ would narrow the interest rate gap with the US, potentially strengthening the yen. Given the uncertain nature of the upcoming CPI release, it’s wise to consider options for managing risk and taking advantage of expected volatility. Implied volatility for short-term USD/JPY options has reached its highest level in over a month, indicating market uncertainty. Traders anticipating a significant move in either direction might look into long straddles or strangles focused on the current 152.00 level. For those with strong directional views, buying out-of-the-money call options could be a strategy to benefit from a higher-than-expected inflation figure, with limited downside risk. On the other hand, purchasing put options would be advantageous if US inflation decreases or if the BoJ hints at an imminent rate hike. This approach allows us to set a clear maximum loss from the beginning. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now