Japan’s Services Inflation Rises

The Japanese Yen (JPY) has fallen against the US Dollar for the seventh straight day. This decline is due to expectations that Japan’s new Prime Minister, Sanae Takaichi, will continue to implement expansionary fiscal policies. Additionally, easing trade tensions between the US and China have pushed the USD/JPY pair to a two-week high near 153.25-153.30 during the Asian session. Recently, data showed that service-sector inflation in Japan increased in September. This rise has fueled speculation about a possible rate hike by the Bank of Japan (BoJ). This increase in inflation contrasts with the dovish outlook from the US Federal Reserve, which may limit the Yen’s potential for further gains. Traders are likely to be cautious ahead of important announcements from both the Fed and BoJ this week. Japan’s Services Producer Price Index (PPI) rose to 3.0% in September, marking the second consecutive month of increases. This data supports arguments for tightening by the BoJ. However, Prime Minister Takaichi’s pro-stimulus policies raise concerns about Japan’s financial health, making the Yen less appealing. In the US, the Consumer Price Index (CPI) increased by 0.3% in September, leading to a 3% annual increase. These numbers support market expectations for upcoming interest rate cuts by the Federal Reserve, which may impact the Dollar’s rebound and provide some support for the Yen amidst differing central bank outlooks. On a global scale, positive progress in US-China trade discussions has reduced the Yen’s appeal as a safe-haven currency. Technically, if the USD/JPY pair surpasses the 153.25-153.30 zone, it could move towards 154.00. However, if it falls below the 152.65 support level, it might drop further to around 151.00.

Monetary Policy Shifts Impact

The Bank of Japan, which aims for a 2% inflation rate, adopted an ultra-loose monetary policy back in 2013. This involved Quantitative and Qualitative Easing (QQE) and negative interest rates, leading to a weaker Yen. This economic stimulus has further devalued the currency, especially as other central banks raised their rates. In 2024, the BoJ began shifting away from this policy due to rising inflation pressures, partly from higher global energy prices and potential wage increases. These changes have significantly affected currency markets, 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 making its policy announcement on Wednesday, followed by the Bank of Japan on Thursday. The market is bracing for high volatility around these major events. The current upward trend is driven by expectations that Prime Minister Takaichi will prefer fiscal stimulus, which usually weakens the Yen. Easing trade tensions between the US and China are also lowering demand for the Yen as a safe-haven asset. For derivatives traders, this means that call options betting on a move toward 154.00 could be appealing if the pair breaks through current resistance. Still, there is a strong possibility of a reversal that would favor the Yen. Japanese services inflation recently hit 3.0%, and core inflation has stayed above the BoJ’s 2% target for nearly 30 months. In contrast, US inflation has cooled to 3%, creating high hopes for a Federal Reserve rate cut this week, with more than an 85% probability pricing in. This growing divergence in policy—a potentially hawkish BoJ versus a dovish Fed—could significantly strengthen the Yen. This presents opportunities for buying JPY call options or USD/JPY put options, especially if the BoJ hints at a faster tightening pace than expected. The first rate hike back in March 2024, the first in 17 years, demonstrated a willingness to shift policy, though the follow-through has been slow. With mixed signals from political and economic data, implied volatility is likely to stay high. Traders might explore strategies like long straddles or strangles to benefit from significant price movements in either direction after the central bank announcements. This approach allows for capitalizing on expected volatility without needing to predict the specific outcomes of the meetings. Key technical levels will guide actions in the coming weeks. A sustained move above the 153.30 supply zone would indicate further upside towards 155.00. Conversely, a significant break below the 152.00 support level could invalidate the bullish outlook. These levels can act as targets for option strategies or entry points for futures positions. Create your live VT Markets account and start trading now.

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