The US Dollar is rising against the Japanese Yen, reaching 152.60. This marks the fourth day of gains, mainly due to speculation about a possible large stimulus program in Japan.

Impact of Japan’s Economic Stimulus

Recent reports suggest a potential USD 90 billion package to help with rising household costs in Japan. This news is expected to affect Japan’s public finances and has contributed to a weaker Yen. Increased demand for safe-haven assets amidst US-China trade tensions is also boosting the US Dollar. Concerns are growing about Japan’s public finances, especially with Sanae Takaichi nominated as the new prime minister. Takaichi is expected to increase government spending, which could challenge the Bank of Japan’s plans for tightening monetary policy. Japan’s Consumer Price Index (CPI) data for September is anticipated to show rising inflation, which might help the Yen. This data release will be closely monitored, as higher inflation could support the Bank of Japan’s interest rate plans. Japan’s National Consumer Price Index (CPI) measures price changes for goods and services. The next report is due on October 23, 2025, with expectations of a 2.9% increase, following a previous reading of 2.7%. With the US Dollar surpassing 152.50 against the Yen, the key factor is Japan’s potential $90 billion stimulus package. This emphasis on government spending indicates ongoing pressure on the Yen, as it prioritizes economic growth over currency stability. The market sees this as a strong indication of continued Yen weakness.

Risks of Intervention and Trading Strategies

We must be careful at these levels, as government intervention could happen. In late 2022 and spring 2024, Japan’s Ministry of Finance intervened to buy Yen when the Dollar hit similar heights. The risk of a sudden reversal by officials is now heightened. Two important inflation reports are creating uncertainty in the near term. Tonight’s Japanese CPI, expected at 2.9%, could temporarily support the Yen if it comes in higher than predicted. Tomorrow’s US CPI will influence the Dollar’s next movement. These upcoming reports make any directional bets very speculative in the next 24 hours. Traders wanting to take advantage of the upward trend can buy call options on USD/JPY, betting on further Yen weakness. This strategy allows for profit from price increases while limiting risks to the premium paid, especially given the potential for intervention. The news of the stimulus and the new, fiscally-dovish prime minister provide strong reasons for this strategy. Given the high risks associated with upcoming events, a volatility strategy may be smarter in the coming days. Buying an options straddle or strangle enables traders to profit from significant price swings in either direction after the inflation data without needing to predict the exact outcome. This method takes advantage of the current uncertainty itself rather than relying on a specific direction. Overall, the large interest rate gap between the US and Japan remains significant. The Bank of Japan ended its negative interest rate policy in March 2024 and has been slow to raise rates since then. This ongoing policy divergence, alongside a hawkish Federal Reserve, will likely keep the Yen weak for the foreseeable future, even if there are short-term pullbacks. Create your live VT Markets account and start trading now.

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