The USD/JPY rate rose to about 153.15 in early Asian trading on Monday. This increase happened as the Japanese Yen weakened against the US Dollar due to positive news about a possible trade deal between the US and China. US and Chinese economic officials have agreed on a trade deal framework before Presidents Trump and Xi meet in South Korea. This agreement eased concerns over a looming 100% US tariff on Chinese imports that was set to start on November 1.

Impact On Risk Sentiment

Good news from the US-China trade talks has boosted risk appetite, hurting the Yen’s status as a safe haven and providing stability to the USD/JPY pair. Also, US Consumer Price Index (CPI) inflation data came in lower than expected, making a Federal Reserve interest rate cut more likely. In September, US CPI inflation increased by 3.0% year-on-year, slightly below the 3.1% forecast. On a monthly basis, CPI rose by 0.3%, after a 0.4% increase in August, while core CPI climbed by 0.2%. The Yen has weakened even though Japanese core inflation is higher, ahead of a meeting where the Bank of Japan (BoJ) is expected to keep its rate policy unchanged. The BoJ’s ultra-loose monetary policy from 2013 to 2024 has affected the Yen’s value against other currencies. The move in USD/JPY above 153.00 is driven by hope for a US-China trade framework, creating a risk-on atmosphere that weakens the Yen as a safe haven. This momentum is strong but depends heavily on the political results of the upcoming Trump-Xi meeting. We should be cautious because similar spikes in the past have been temporary during the market volatility of 2023 and 2024.

Federal Reserve’s Influence

The softer US inflation data, with CPI at 3.0%, complicates a fully optimistic view of the dollar and raises the likelihood of Federal Reserve rate cuts. The CME FedWatch Tool shows a higher chance of a rate cut in the first quarter of 2026 compared to a month ago. This situation makes selling out-of-the-money call options on USD/JPY an appealing strategy to earn premium, betting that the Fed’s stance will limit the rally. We also need to consider the Bank of Japan, which will meet this week. Despite ending negative interest rates early in 2024, the gap between US and Japanese policies remains significant, putting pressure on the Yen. Any signals from the BoJ about further policy changes could lead to a sharp reversal, making it wise to hedge long dollar positions with put options. Given the lower market volatility, traders who believe the trade deal will move forward might think about buying call options with a strike price around 155.00. Implied volatility has likely dropped with the good news, making options more affordable and providing a cost-effective way to capture further gains. This strategy comes with defined risk if the political situation unexpectedly worsens. For those who are less sure, a neutral approach like an iron condor could be suitable, aimed at profiting if the pair stays between 151.00 and 155.00. This method benefits from time decay, with the hope that neither optimism about the trade deal nor the weak inflation data will cause a decisive breakout soon. This way, you can collect premium while waiting for clearer trends from central bank meetings. Create your live VT Markets account and start trading now.

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