The Japanese Yen (JPY) is gaining strength during the early European session, bringing the USD/JPY pair down to 148.00. While opinions on the Bank of Japan (BoJ) are mixed, it is expected to continue its path toward policy normalization. Geopolitical tensions and the potential for US government shutdowns are making the JPY more attractive. The BoJ’s strong stance contrasts with the US Federal Reserve’s expectations of two rate cuts before the end of the year, which is weakening the USD.

Japan’s Economic Performance

In August, Japan’s Industrial Production fell by 1.2%, exceeding expectations, and Retail Sales dropped 1.1% year-on-year. These declines are linked to worries about US tariffs, as the White House modifies timber and lumber imports. Market speculation around a possible BoJ rate hike contrasts with the anticipated Fed rate cuts. Despite this speculation, the JPY continues to rise, supported by political uncertainty and economic data. The USD/JPY pair shows support near the 200-day Simple Moving Average. Resistance is around the 149.00 level. If the pair dips below 148.40, it could indicate further decline. As of late September 2025, it’s expected that the US Dollar will keep weakening against the Japanese Yen. This is mainly due to differing monetary policies between the Bank of Japan and the US Federal Reserve, suggesting that the USD/JPY pair will likely trend downward in the coming weeks.

Monetary Policy Divergence

The Bank of Japan is clearly moving toward policy normalization, having ended its negative interest rate policy in March 2024. Japanese inflation has remained above the 2% target, as shown by data from the Statistics Bureau of Japan, which indicates high Tokyo Core CPI levels. This pressure is leading toward further tightening, giving the Yen a boost. In contrast, the US Federal Reserve is expected to continue easing, a trend we’ve seen develop over the past year. With US inflation cooling from its highs in 2023 and signs of a slowing labor market, the market anticipates at least one more rate cut before the end of 2025. This shrinking interest rate gap between the US and Japan further weakens the US dollar. Additionally, the Yen’s status as a safe-haven asset makes it more appealing during uncertain times. Concerns about a potential US government shutdown, similar to issues in late 2023, are driving investors toward the perceived safety of the JPY. These geopolitical and domestic political risks add extra support for a stronger Yen. For derivative traders, this outlook suggests preparing for a drop in USD/JPY. Buying put options on the pair with strike prices below the current 148.00 level could be a straightforward strategy. This approach allows for profit from a downward move while limiting the maximum loss to the premium paid for the options. The technical picture supports this bearish view, as the pair currently tests the crucial 200-day Simple Moving Average near 148.40. A sustained break below this level would signal further declines, making the pair vulnerable to falling toward the 147.50 and then the 147.00 support levels. Traders may use this breakdown to enter or increase short positions. To manage risk against a potential surprise rally, traders might consider a bear put spread. This strategy involves buying a put option at a higher strike price and selling another put at a lower strike price simultaneously. This approach lowers the initial trade cost and sets clear limits on maximum profit and loss, providing a more controlled way to express a mildly bearish outlook on USD/JPY. Create your live VT Markets account and start trading now.

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