The USD/JPY fell below 150 after the US released a disappointing labor report for July. Before this report, the pair was trading above 150.00, marking the first time since early April. Recent meetings from the Federal Reserve (Fed) and the Bank of Japan (BoJ) have influenced currency movements. The US jobs report has revived hopes for the Fed easing its policies. We expect USD/JPY to keep dropping over the next three months. This mainly depends on whether the market thinks the BoJ will raise rates by year-end. Even though the USD performed well in July, new speculation about the Fed becoming more dovish has weakened the dollar. There are expectations for four potential rate cuts by the Fed next year, starting as early as next month. With USD/JPY breaking below the 150 level, we are changing our short-term outlook. The US Non-Farm Payrolls for July showed only 110,000 jobs added, far below the expected 180,000, indicating a cooling labor market. This supports the idea of a weaker US dollar in the coming weeks. The soft jobs report has shifted market expectations for Fed policy. The CME FedWatch Tool now shows over a 70% chance of a 25-basis-point rate cut at the September meeting. This follows June’s Core CPI data, which showed a year-over-year increase of 2.8%, moving closer to the Fed’s target. Meanwhile, we are keeping an eye on the BoJ for signs of tightening policy later this year. Japan’s latest Core CPI reading in mid-July remained above the BoJ’s 2% target for the 15th month in a row, hitting 2.4%. This ongoing inflation may prompt the BoJ to consider a rate hike, which would strengthen the yen. Looking back, the major policy changes of 2024, which ended negative interest rates, have set the stage for the current situation. The contrasting strategies of a dovish Fed and a hawkish BoJ mark a complete turnaround from the working environment in 2023. This difference in policy is the main factor driving a lower USD/JPY exchange rate. For our derivative positions, this indicates a strategy to benefit from a falling USD/JPY. We should think about buying USD put options or JPY call options with expirations in the next three to six months to take advantage of this anticipated decline. The goal is to position for a stronger yen against a weakening dollar. Given the uncertainty about when the BoJ might act, we see a chance for rising currency volatility. Implied volatility for USD/JPY options has already increased from the lows in June 2025. This suggests that option straddles, which profit from significant price moves in either direction, could be a good strategy if we’re not sure when the moves will happen.

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