The Japanese Yen has recently improved, trading around 150 against the US dollar. This change isn’t linked to Abenomics returning, even with Takaichi as the new LDP leader, since the LDP and Komeito coalition has broken down. Uncertainty surrounding the upcoming election for Japan’s next prime minister and coalition formation adds to this situation.

Political Dynamics In Japan

While Takaichi may not become prime minister, talks between the LDP and smaller parties are ongoing. Three opposition parties considering a coalition could mark a first in Japanese politics. However, these parties have had no experience governing over the past 13 years, which raises concerns about the stability of any new government. Bold reforms seem unlikely, and policy changes might only aim at relieving households and controlling inflation. We may see minor actions, such as suspending gasoline taxes. Further devaluation of the yen could worsen the situation, making a steadier exchange rate probable amid Japan’s political uncertainty. The current political challenges in Japan suggest that the yen may stabilize in the near term. The breakdown of the LDP coalition indicates that whoever becomes prime minister after the October 21st parliamentary session will lead a weak government, limiting drastic economic reforms. This implies that the yen’s recent recovery to around the 150 level against the dollar may signal a more controlled trading range. For derivatives traders, this situation points to strategies that benefit from falling volatility. We’ve already noticed that implied volatility on one-month yen options dropped from over 12% in early October 2025, when a Takaichi-led government seemed likely, to about 8.5% now. This trend indicates that selling option premiums, such as through short straddles or strangles, could be a good strategy in the upcoming weeks.

Trading Strategies In A Stabilizing Market

We expect the USD/JPY pair to remain within a tight range, likely between 148 as support and 152 as resistance, based on our observations in September 2025. An options structure like an iron condor, which profits when the currency pair stays within a set range, may work well in this context. This strategy enables traders to earn premiums while the political landscape stifles any major moves. This scenario brings to mind the “revolving door” era of Japanese prime ministers before 2012, when political indecision hindered significant shifts in currency policy. Moreover, with September 2025’s inflation report showing a stubborn 2.8%, any new government will face immense pressure to avoid a weaker yen that raises import costs. This reinforces our belief that authorities will prioritize stability over stimulus. Create your live VT Markets account and start trading now.

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