USD/JPY is on the rise, as market expectations for an October rate hike are being lowered. Etsuro Honda, an adviser to future Prime Minister Takaichi, believes a 25 basis point hike in December is possible based on economic conditions. Currently, the rate is 150.80, according to analysts Frances Cheung and Christopher Wong from OCBC.

Potential Risks in the USD/JPY Trend

There could be further increases unless the dollar falls sharply or if the Bank of Japan signals an earlier rate hike. It’s essential to observe Takaichi’s approach to policies, cabinet changes, budgets, and trade strategies, including the review of the US-Japan trade agreement. Finance Minister Kato has mentioned keeping an eye on large fluctuations in the FX market but isn’t raising any alarms right now. Market indicators show bullish momentum with a rising RSI and the formation of a potential golden cross. The risks still favor a rise, with resistance levels at 150.90, 151.70, and 152.50. Support levels are at 148.30, 147.80, and 146.50. The USD/JPY is likely to stay strong unless there are significant changes in US economic policies or Japanese financial signals. With USD/JPY at 150.80, hopes for a Bank of Japan rate hike this month are diminishing. An adviser to the future Prime Minister suggests a December rate hike seems more probable, depending on economic conditions. This delay in tightening the policy is keeping the yen weak and supporting the currency pair. The U.S. side remains robust, which applies pressure on the pair. The latest U.S. jobs report from early October showed strong hiring, allowing the Federal Reserve to maintain high interest rates. There seems to be little reason for a significant dollar sell-off without a major shift in U.S. economic data.

Domestically Driven Inflation Concerns

In Japan, the core inflation rate for September came in at 2.7%, staying above the central bank’s 2% target for over a year. This ongoing inflation supports the idea of a rate hike being a matter of time. However, the current political stance is to wait until December to take action. We should note the Ministry of Finance, as their warnings about “excessive moves” are becoming more frequent. Looking back at late 2022 interventions, the ministry acted decisively to defend the yen when the pair was between 150 and 152. Although the threshold may have shifted, the risk of sudden intervention increases as the pair rises. Given the bullish technical signals, including the emerging golden cross, traders might consider strategies to profit from continued upward movement. Buying call options or creating bull call spreads on USD/JPY could capitalize on gains while managing risk against quick interventions. These strategies would leverage the upward momentum while limiting losses if the Ministry of Finance intervenes. The options market shows this upside trend, as one-month risk reversals indicate a preference for USD calls over puts. This signals that traders are preparing for more gains, betting that fundamental drivers will outweigh threats of intervention soon. We expect resistance near 150.90 and again at 151.70. Create your live VT Markets account and start trading now.

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