The USD/JPY has been steadily falling, mainly due to decreasing US Treasury yields, and is currently around 149.71. The outlook appears bearish. In Japan, the focus is on the potential alliance between the LDP and JIP, which could secure 231 seats—just shy of the 233 needed for a majority. This coalition might help LDP’s Takaichi move closer to becoming Prime Minister, while opposition parties consider forming their own alliance to compete.

Political Moves In Japan

Political activity is expected to ramp up as parliament gets ready to meet on October 21 to vote for a new Prime Minister. Meanwhile, Bank of Japan (BOJ) Governor Ueda has stated that the BOJ’s policy will remain the same, with possible changes depending on improvements in the economic outlook. Several factors are influencing the USD/JPY rate, including Japan’s policy decisions, ongoing US-China tensions, and overall risk sentiment. Technical analysis shows a decrease in bullish momentum and a drop in the Relative Strength Index (RSI). Important support levels are at 149.67 and 148.50, while resistance is found around 150.35, 151, and 151.90. The FXStreet Insights Team is composed of journalists who gather market observations and expert insights. The USD/JPY has continued its downward trend, following lower US yields and hovering around 149.71. The risks in the near term seem tilted downward. All eyes are on the parliamentary vote for Prime Minister on October 21. Political maneuvering before this vote is creating significant uncertainty, especially concerning the LDP and JIP coalition talks, which could bring Takaichi closer to the Prime Minister position. Such event-driven risks are classic triggers for rising implied volatility. Traders might consider purchasing options, like put options or straddles, to prepare for a potential sharp move following the decision on October 21.

Market Responses And Strategies

Recent data support this cautious stance, showing September’s national CPI at 2.9%, slightly above expectations, which places pressure on the BOJ. We have also observed the Cboe FX Yen Volatility Index (JYVIX) rise to its highest point in three months, indicating market anxiety. This situation resembles the heightened intervention alerts we saw in 2022 and 2023 when the USD/JPY traded in a similar range. Governor Ueda’s comments indicate that the BOJ is likely in a wait-and-see mode for now, looking for more confidence in the economic outlook. However, a new government could change the trajectory of policy normalization, especially regarding Japan’s debt and deficit. This policy uncertainty supports strategies that would benefit from a stronger yen, such as buying USD/JPY put options with expirations in late November to capture any shifts in policy after the vote. The technical analysis reinforces a bearish outlook as daily momentum weakens. With the next support level at 149.67 and then 148.50, traders could consider purchasing put options with strike prices near these levels. Additionally, resistance at 150.35 presents an opportunity to sell call options or set up bear call spreads, betting that the pair won’t rally past this level in the coming weeks. Create your live VT Markets account and start trading now.

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