The Japanese Yen (JPY) is getting stronger against the US Dollar (USD), breaking a four-day upward trend for the USD/JPY pair. Currently trading around 154.35, it’s just below the recent high of 155.05 from the past nine months. The Dollar isn’t getting a boost from the resolution of the US government shutdown, and there’s growing anticipation for upcoming US economic data. This data will be crucial for predicting if the Federal Reserve (Fed) will make rate cuts in December.

Fed Rate Cut Prospects

Kevin Hassett noted that the September nonfarm payrolls report should come out next week. He also warned that the shutdown might reduce Q4 GDP by 1.5%. Fed officials remain cautious about rate cuts due to ongoing inflation concerns, even with a slowing labor market. Japan’s fiscal policies and the Bank of Japan’s (BoJ) careful approach to making policy changes are holding back the Yen’s recovery. Intervention could occur as the USD/JPY approaches important levels. Prime Minister Sanae Takaichi and BoJ Governor Kazuo Ueda met to emphasize their commitment to working together toward economic goals. The Yen’s strength is influenced by BoJ policy, differences in bond yields, and the global sentiment towards risk. Investors often choose the Yen during times of market instability, which can increase its value. The BoJ’s history of easing monetary policy has led to Yen depreciation, but recent policy changes are providing some support.

Interest Rate Differentials

Looking at the market on November 14, 2025, we see notable changes in USD/JPY compared to a couple of years ago. The pair is now trading around 142.50, significantly lower than the highs above 155 from late 2023. This shift is mainly because the policy gap between the Federal Reserve and the Bank of Japan has started to close. In the US, the Federal Reserve has implemented several rate cuts throughout 2024 and early 2025, lowering the Fed Funds rate to a target of 3.75%. However, with the October 2025 CPI at 2.8%, the Fed is now signaling a pause, creating uncertainty regarding future moves. This contrasts with the concerns in late 2023 when officials were focused on high inflation and hesitant to consider easing. Conversely, the Bank of Japan has moved away from its ultra-loose monetary policy mentioned earlier. This year, the BoJ ended its negative interest rate policy and dropped yield curve control, bringing the policy rate to 0.10%. Japanese inflation has remained consistently above target, with core CPI for October 2025 at 2.2%, prompting the central bank to stay cautiously hawkish. This has significantly changed the landscape for interest rate differentials, which are crucial for the Yen’s value. The spread between the US 10-year Treasury yield (now 4.1%) and the 10-year Japanese Government Bond yield (at 1.2%) has tightened significantly from earlier highs. This narrowing of yields has supported the Yen over the past year. For derivative traders, the era of a steady upward trend in USD/JPY has ended. We should prepare for more fluctuating activity and periods of range-bound trading. Options strategies that benefit from volatility, such as straddles, could be useful during major data releases from the US or Japan. During more stable periods, selling volatility through strategies like iron condors may be better, as the major policy shifts are likely already reflected in prices. Create your live VT Markets account and start trading now.

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