The Japanese Yen has dipped, dropping 0.2% against the US Dollar, and has struggled compared to most G10 currencies during quiet trading. This trend comes after Prime Minister Takaichi announced new policies aimed at tackling high inflation by reducing gasoline taxes and lessening the tax burden on earned income. The latest inflation data met expectations, showing core and headline rates around 3% year-on-year, a level not seen in decades. The USD/JPY pair remains stable within the 149.50 to 153 range, but recent signs indicate a potential rise, with resistance expected between the mid-156 and mid-158 levels.

Observations And Analysis

The FXStreet Insights Team gathered key observations from respected experts along with analyses from various analysts. We continue to see a trend that started when Prime Minister Takaichi introduced his fiscal plans, keeping the Yen under pressure. This trend has pushed the USD/JPY pair significantly higher over the past year, now around 162.50. The Yen’s weakness persists despite core inflation remaining high. Recent data backs this up, with September’s core CPI for 2025 at 2.9%, challenging the Bank of Japan’s (BoJ) position. Despite this, the BoJ has provided only slight hints of potential policy changes, causing the interest rate difference to favor the dollar greatly. This difference is the main reason for the Yen’s struggles. For those trading derivatives, buying call options on USD/JPY could be a good move to take advantage of potential increases toward the 165 level. This approach limits risk while aligning with the trend of Yen weakness. The lack of strong opposition from officials suggests that prices may continue to rise for now.

Strategies For Traders

However, it’s essential to consider the rising risk of sudden government intervention, like what happened in the fall of 2022. To protect against a sharp drop, traders might want to buy out-of-the-money put options on USD/JPY. This serves as a cost-effective insurance policy against unexpected moves from the Ministry of Finance to support the currency. Given the tension between the ongoing weak Yen trend and the risk of intervention, implied volatility is likely to rise before the next BoJ meeting. A long straddle strategy could effectively profit from major price movements in either direction. This position would benefit from either a significant breakout to new highs or a sudden reversal triggered by government actions. Create your live VT Markets account and start trading now.

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