Japan’s Services Inflation Rises

The Japanese Yen (JPY) has fallen for the seventh straight day against the US Dollar. This decline is due to expectations that Japan’s new Prime Minister, Sanae Takaichi, will continue with fiscal policies aimed at growth. Additionally, improving US-China trade relations are pressuring the Yen. This has pushed the USD/JPY exchange rate to a two-week high near 153.25-153.30 during the Asian trading session. Recent data shows that Japan’s service sector inflation increased in September. This rise raises speculation about a potential interest rate hike by the Bank of Japan (BoJ). However, dovish signals from the US Federal Reserve might limit the Yen’s upward movement. Traders are likely to stay cautious as they await important announcements from both the Fed and the BoJ this week. Japan’s Services Producer Price Index increased for the second month in a row, reaching 3.0% in September. This supports arguments for BoJ tightening. However, Takaichi’s pro-stimulus policies have raised concerns about Japan’s fiscal health, which weakens the Yen’s attractiveness. In the US, the Consumer Price Index rose by 0.3% in September, resulting in a 3% annual rate increase. These figures support market expectations for potential Federal Reserve interest rate cuts, which could limit the Dollar’s rebound and help the Yen find some support amid mixed central bank outlooks. On the international front, progress in US-China trade talks has reduced the Yen’s appeal as a safe-haven currency. Technically, if USD/JPY crosses above the 153.25-153.30 range, it may rise towards 154.00. Support remains at 152.65, but if this level breaks, the Yen could drop further to 151.00.

Monetary Policy Shifts Impact

The Bank of Japan has aimed for a 2% inflation rate since it introduced an ultra-loose monetary policy in 2013 to address low inflation. This involved measures such as Quantitative and Qualitative Easing (QQE) and negative interest rates, which led to a weaker Yen. The economic stimulus contributed to currency devaluation, in contrast to other central banks that were raising rates. In 2024, the BoJ began to shift away from this policy due to rising inflation pressures, driven partly by global energy prices and potential wage increases. These changes have had a significant impact on the currency market, highlighting ongoing adjustments in monetary policy. As of October 27, 2025, the USD/JPY pair is testing important resistance near 153.30. This week is crucial, with the US Federal Reserve releasing its policy announcement on Wednesday, followed by the Bank of Japan on Thursday. The market should expect high volatility surrounding these key events. The momentum in the market is driven by hopes that Prime Minister Takaichi will support fiscal stimulus, which typically weakens the Yen. Easing trade tensions between the US and China are also decreasing the demand for the Yen as a safe-haven asset. For derivatives traders, this environment may make call options betting on a rise to 154.00 appealing if the pair breaks above current resistance. However, there are strong reasons to consider a reversal that favors the Yen. With Japanese services inflation recently hitting 3.0% and core inflation staying above the BoJ’s target of 2% for almost 30 months, the conditions are ripe for a Yen rebound. Meanwhile, US inflation has cooled to 3%, leading to high expectations for a Fed rate cut this week, with over an 85% probability priced in. This growing divergence in policies—between a potentially hawkish BoJ and a dovish Fed—could significantly strengthen the Yen. This creates opportunities for buying JPY call options or USD/JPY put options, especially if the BoJ signals a more aggressive tightening path than anticipated. The first rate hike in March 2024, the first in 17 years, demonstrated a willingness to change policy, but implementation has been slow. With conflicting signals between political pressures and economic data, implied volatility is likely to remain high. Traders might consider strategies like long straddles or strangles to leverage potential price swings in either direction after the central bank announcements. This method allows for profit without needing to predict the specific outcomes of the meetings. Key technical levels could be crucial triggers for action in the weeks ahead. A sustained move above the 153.30 resistance level would suggest further potential toward 155.00, while a decisive drop below 152.00 could eliminate the bullish outlook. These levels can act as strike prices for option strategies or entry points for futures trades. Create your live VT Markets account and start trading now.

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