Economic Trends in Japan

Japan’s capital spending grew by 2.9% last quarter, although this growth is slower than before. The Composite PMI is at 52.0, showing modest growth. The yen continues to strengthen as Prime Minister Sanae Takaichi assures fiscal policies and the US dollar faces selling pressure. Traders are watching the 155.40-155.35 area for support on the USD/JPY 4-hour chart, while recovery could hit resistance at 156.00. As we enter December 2025, the Japanese yen is gaining strength. This is due to the Bank of Japan signaling a potential interest rate hike, while the US dollar weakens as expectations rise for another rate cut from the Federal Reserve this month. The growing difference between the two central banks’ policies will be an essential focus for us in the weeks ahead. Our belief in a weaker dollar is backed by recent data, showing that US Core PCE inflation for October 2025 fell to 2.8%, lower than expected. This, along with a disappointing November jobs report, gives the Federal Reserve more reasons to continue easing its policies. We expect this ongoing pressure on the dollar to lead to a decline in the USD/JPY pair.

Strategic Moves in Forex Market

Meanwhile, the Bank of Japan is getting ready for a major policy change, moving away from its long-standing negative interest rate policy. The rise of the two-year Japanese government bond yield above 1% for the first time since 2008 shows that the market is anticipating this change. The BoJ hasn’t gone through a significant tightening cycle since 2006-2007, and this shift is giving the yen a strong boost. With this outlook, we are looking to buy put options on the USD/JPY pair, targeting prices below the 155.00 support level. Choosing an expiration date in late January 2026 will align with the timing of the next possible Bank of Japan rate decision. This strategy allows us to gain substantially if prices continue to drop, while also setting clear limits on our risk. We also observe a current risk-off sentiment in the broader market, as the S&P 500 fell by over 2% last week after reaching highs in November 2025. This uncertainty in global stocks makes the yen more attractive as a safe-haven asset, further supporting our view that the yen’s trend is upward. Create your live VT Markets account and start trading now.

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