Japan’s National Consumer Price Index (CPI) rose by 2.9% year-on-year in September, up from 2.7% last month. The CPI, excluding fresh food, also saw a 2.9% increase, meeting market expectations. When we look at the CPI without fresh food and energy, it increased by 3.0% year-on-year in September, down from 3.3% previously. After the CPI data was released, the USD/JPY currency pair went up by 0.45%, reaching 152.65.

The Japanese Yen

The Japanese Yen is among the most traded currencies in the world. Its value is influenced by Japan’s economic health, the Bank of Japan’s policies, differences in bond yields between Japan and the US, and market risk sentiment. The Bank of Japan (BoJ) affects the Yen through its currency policies and interventions. Its loose monetary policy from 2013 to 2024 caused the Yen to weaken, but recent policy shifts have begun to support it. Yield differences between Japanese and US bonds also play a role in the Yen’s value. The BoJ’s previous policies widened this gap, benefiting the US Dollar, but adjustments are now tightening it. During global financial stress, the Yen is seen as a safe haven. Turbulent times usually strengthen the Yen compared to riskier currencies.

Market Response

With the new inflation data from September, Japan presents a mixed picture. The headline inflation has risen, but the core inflation—excluding food and energy—has softened. This is important because it gives the Bank of Japan (BoJ) a reason to steer clear of aggressive interest rate hikes for now. Currently, USD/JPY is trading at 152.65. The main factor driving this is the large interest rate gap between the US and Japan. This situation is supported by strong US retail sales data from October 17, 2025, which showed a 0.9% month-over-month increase. This reinforces the US Federal Reserve’s ability to keep rates high, favoring the dollar over the yen. However, we must tread carefully at this level. Japanese authorities heavily intervened to support the yen in late 2022 and again in 2024 when the dollar neared these levels. Therefore, the risk of a quick yen appreciation due to government action is quite high. This makes shorting the yen risky for traders. Given the tension between fundamental market pressures and the risk of intervention, trading volatility is a sensible approach. We should consider buying USD/JPY call options. This strategy lets us benefit if the pair continues to rise while limiting losses to the premium paid if authorities intervene. It allows us to participate in the uptrend while safeguarding against a sudden policy change. The market is anticipating this uncertainty, as 1-month implied volatility for USD/JPY options has jumped from 9% to over 12% since the beginning of October. This indicates rising option prices and signals that significant price movements are expected. Using call spreads can lower entry costs while still positioning for further yen weakness. Create your live VT Markets account and start trading now.

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