MUFG has shared insights on the Federal Reserve’s new stance, hinting that a rate cut could happen as soon as next month. This follows Chair Powell’s acknowledgment of risks to jobs, which may lead to layoffs. A weak jobs report for September might push the Fed to lower rates. This change could weaken the dollar as the gap in policies between the U.S. and other central banks becomes clearer. The European Central Bank (ECB) and the Bank of England (BOE) are not expected to cut rates further this year, thanks to steady growth and ongoing price pressures. Rumors are also rising that the Bank of Japan (BOJ) might hike rates again by the end of the year.

USD/JPY Positioning Outlook

On the USD/JPY front, MUFG highlights a positioning aspect. Recent data shows that leveraged funds are increasing their short positions in JPY. This could be an opportunity to short the pair because of the current differences in policies. We believe that Powell’s recent remarks have opened the possibility for a rate cut next month. He is clearly focusing on the risks in the job market, recognizing that layoffs might be on the way. If the September jobs report is weak, it could prompt the Fed to start easing policy in October. This expected change could lead to a decline for the U.S. dollar, especially as the policy gap with other central banks widens. The latest U.S. Consumer Price Index (CPI) data from July 2025 shows inflation steady at 2.8%. This gives the Fed more room to concentrate on the weakening labor market, which added only 95,000 jobs. This stands in stark contrast to monetary policies in other countries.

Monetary Policy Differences

For example, it seems unlikely that the ECB or BOE will lower rates further in 2025. Eurozone inflation has recently risen to 3.1%, while UK wage growth remains high at 4.5%. This means their efforts to combat inflation are ongoing. This difference should continue to put pressure on the dollar against the euro and the pound. At the same time, speculation is growing that the BOJ might implement another rate hike by year-end. With Japanese inflation consistently above the 2% target, the BOJ is feeling the pressure to normalize its policies, which may strengthen the yen in the medium term. In terms of USD/JPY, there is a significant opportunity for traders. Recent data indicates that speculative funds have increased their short positions in JPY to over 120,000 contracts. This crowded positioning hasn’t been seen since late 2024, making the pair susceptible to a sharp reversal. Thus, it’s a good time to consider short positions through options or futures. Create your live VT Markets account and start trading now.

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