The USD/JPY has fallen by 0.6%, nearing 152.00 during Tuesday’s European trading. This decline is due to the Japanese Yen (JPY) gaining strength, thanks to improved trade relations between the US and Japan. Today, the JPY is performing strongest against the British Pound. Japan’s cabinet plans to invest $550 billion in the US, focusing on areas like power and automotive industries. Toyota has committed to investing up to $10 billion in US auto plants.

Strong Bilateral Relations

US President Donald Trump commended Japan’s new Prime Minister, Sanae Takaichi, highlighting the strong bilateral ties between the two nations. At home, the Bank of Japan is expected to maintain interest rates at 0.5% this Thursday. In contrast, the US Dollar is trading lower due to anticipation of a Federal Reserve interest rate cut on Wednesday. The US Dollar Index, which compares the USD to six major currencies, has dropped by 0.15%, sitting around 98.60. The USD, the official currency of the United States, makes up over 88% of worldwide foreign exchange trading. Its value is heavily affected by the Federal Reserve’s monetary policies, including actions like quantitative easing, often leading to a weaker Dollar. With USD/JPY dropping towards 152.00, this trend looks set to continue, mainly because of the policy differences between the Federal Reserve and the Bank of Japan. Japan’s $550 billion investment pledge strengthens the Yen, showcasing positive fundamentals that support its rise. This goodwill is accelerating the pair’s decline.

Federal Reserve Rate Cut

In the US, expectations are high for a Federal Reserve rate cut this Wednesday, which is putting pressure on the dollar. Recent data backs this up, as the September 2025 core PCE price index, the Fed’s preferred inflation measure, is cooling to 2.6% year-over-year. The CME FedWatch Tool shows a 91% chance of a 25-basis-point cut this week. On the other hand, the Bank of Japan faces a different economic situation, which may allow it to keep rates steady, boosting the Yen’s value. Japan’s core CPI has stayed above the BoJ’s 2% target for 19 months, last recorded at 2.8% in September 2025. This ongoing inflation provides the BoJ little motivation to ease policies, highlighting a clear contrast with the Fed. For traders, this market suggests looking for more declines in USD/JPY. Purchasing put options could be a wise strategy, allowing one to potentially profit from a continued drop while limiting risk ahead of the central bank meetings. Implied volatility for one-week USD/JPY options has increased to 10.2%, indicating that the market expects significant price movements. Back in late 2022, Japanese authorities heavily intervened to support the Yen when USD/JPY was around these levels. However, this time, the Yen is strengthening due to solid fundamentals rather than official intervention. Traders should keep an eye on the 151.50 level, which was a key support level during that 2022 period. Create your live VT Markets account and start trading now.

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