The USDJPY rose sharply after Japan’s Prime Minister Ishiba resigned over the weekend. The exchange rate climbed from Friday’s close of 147.382 to a high of 148.57 during the Asian session. This rise exceeded the 50% midpoint of the range since August 1. However, momentum quickly faded, and the rate dropped to a morning low of 147.457 in Europe, briefly falling below the 200-hour moving average of 147.727. Although the currency pair has stabilized, it remains volatile as traders evaluate the effects of Ishiba’s resignation and a weak U.S. jobs report released on Friday. Last week, buyers were able to push USDJPY above its 200-day moving average at 148.735 on Tuesday and Wednesday. Yet, momentum slowed when it faced resistance at the 61.8% retracement level at 149.110. This allowed sellers to regain control near the 200-day moving average and the 50% midpoint. For buyers to regain momentum, the pair needs to move above the swing area of 147.95–148.166 and the falling 100-hour moving average at 148.192. If this does not occur, the downward trend could continue. A drop below the current low of 147.45 may lead to levels between 146.54 and 146.80.

Market Forces In Play

The market is navigating two main influences. Last Friday’s weak U.S. jobs report showed only +95,000 non-farm payrolls, falling short of the +180,000 estimate, putting downward pressure on the dollar. Meanwhile, Ishiba’s unexpected resignation created political uncertainty in Japan, which initially weakened the yen. This instability in Japan makes it less likely that the Bank of Japan will raise interest rates as previously expected later this year. As a result, market expectations for a rate hike have shifted from the fourth quarter of 2025 to early 2026. This divergence in policy is contributing to the fluctuations in the USDJPY pair. From a technical perspective, sellers currently have the advantage. They successfully defended the resistance at the 149.11 level last week and again at the 200-day moving average near 148.73. Today’s spike did not sustain above 148.55, reinforcing the bearish outlook.

Option Strategies

The mix of conflicting fundamental forces and clear technical resistance is driving up volatility. In just a few trading sessions, one-month implied volatility on USD/JPY options has surged from a steady 8% to over 11%. This environment makes option strategies more appealing for managing the expected price fluctuations. Given the bearish technical signals, it may be wise to buy put options to take advantage of a potential decline. A drop below the day’s low of 147.45 would trigger this strategy, aiming for the swing area between 146.54 and 146.80 in the coming weeks. Using put spreads can lower the entry cost while specifying risk in this uncertain market. For those wishing to capitalize on the increased volatility without a strong directional bias, a long straddle could be effective. Any significant movement sparked by new political developments from Japan or more weak data from the U.S. would benefit this position. A sustained movement back above 148.20 would lead us to reassess a bullish approach. Create your live VT Markets account and start trading now.

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