Technical Analysis Overview

The Japanese Yen (JPY) has dropped against the US Dollar (USD) in the Asian market, remaining close to a nine-month low. Japan’s economy shrank by 0.4% from July to September, marking the first decline in six quarters. Year-on-year, GDP fell by 1.8%. This economic downturn comes as Japan’s Prime Minister, Sanae Takaichi, plans a fiscal stimulus while maintaining an ultra-loose monetary policy, which limits expectations for a Bank of Japan interest rate hike. The USD/JPY pair stayed above the mid-154.00s, though Japanese authorities have shown caution against aggressive JPY bets. There are hints that Japanese authorities might intervene to prevent further currency depreciation. A weaker risk appetite is benefiting the safe-haven JPY, while the USD faces challenges in attracting support due to concerns over a prolonged US government shutdown. Japan’s Cabinet Office data suggested economic weakness, affecting predictions about a near-term interest rate hike by the BoJ. Takaichi’s comments on fiscal policy and tensions with China over Taiwan also influenced market sentiment. Japanese officials have verbally intervened to discourage aggressive JPY betting. The Finance Minister emphasized monitoring FX movements, while the Economy Minister warned that a weak JPY increases import costs and impacts CPI. Meanwhile, the US Federal Reserve is cautious about economic data, affecting expectations for rate cuts and supporting the USD and the USD/JPY pair. Important upcoming US data releases may indicate potential rate cuts. Technically, the USD/JPY pair has rebounded from the 153.60 support level, remaining bullish with potential gains above the 155.00 mark. However, slipping below 154.00 could attract buyers near the 153.60-153.50 area, with additional weakness testing the 153.00 level. The BoJ’s previous ultra-loose policies contributed to the Yen’s depreciation, contrasting sharply with other central banks that favored higher rates recently. This trend shifted in 2024 as the BoJ began adjusting its policies in response to rising inflation and potential salary increases. The BoJ, which sets Japan’s monetary policy, has changed its long-term stance due to inflation pressures that exceeded its 2% target. Global factors, like energy price spikes, have influenced inflation, while internal policy changes led the BoJ to modify its approach by March 2024, ending years of yen depreciation despite global economic changes.

Policy Divergence

The differences between US and Japanese policies are a major driver of the USD/JPY exchange rate. Japan’s economy is struggling, as shown by a 0.4% contraction in the third quarter of 2025, similar to the economic weakness seen in Q3 2023. This poor performance, along with a government focused on stimulus, makes it unlikely that the Bank of Japan will raise rates soon, even after their historic move away from negative rates in March 2024. A key risk for anyone holding long positions is direct intervention from Japanese authorities. We have seen precedent for this, with major interventions in late 2022 at the 151.90 level and again in spring 2024 when the pair exceeded 160. Current warnings as we approach the mid-154.00s should be taken seriously, signaling low tolerance for further rapid yen depreciation. On the flip side, the US Federal Reserve remains cautious about easing policy due to persistent inflation, which recent data shows is still around 2.8% year-over-year. This interest rate differential supports the dollar’s strength against the yen. Traders should pay attention to this Thursday’s US Nonfarm Payrolls report; a strong number could encourage dollar bulls to test the 155.00 level, a psychological point for potential intervention. Given this backdrop of rising pressures coupled with potential intervention risks, implied volatility is likely to be elevated. Selling options to gather premiums might seem appealing, but it carries significant risks of sudden moves against your position. Instead, buying straddles or strangles could be a smart way to profit from a significant move in any direction, whether from strong US data or intervention. For those who are bullish, using option spreads is a safer option than holding direct long futures or spot positions. A bull call spread—such as purchasing a 155 strike call and selling a 157 strike call—allows for participation in further gains while limiting maximum risk. This strategy protects traders from catastrophic losses if the Ministry of Finance decides to act decisively, as they did in 2024. Create your live VT Markets account and start trading now.

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