The Japanese yen is slightly rising against the US Dollar as the North American trading session begins. Political changes in Japan are helping stabilize the yen. Traders are considering how the collapse of the governing coalition might impact the Bank of Japan and its monetary policies. The yen’s strength comes partly from yield spreads. Its recent drop was more about market sentiment, as seen in the USD/JPY’s connection to risk reversals. Recent economic data shows a mix of weaker labor earnings but stronger trade and Producer Price Index (PPI) figures. The market now expects 4 basis points of tightening by October 30 and 14 basis points by December, a shift in outlook compared to earlier forecasts.

Potential Bearish Reversal

For USD/JPY, a significant bearish reversal could happen if the rate falls below 152.14. The pair’s rally may be running out of steam, showing an RSI of 70. The FXStreet Insights Team has gathered insights from market experts, including comments from both internal and external analysts. Other analyses discuss the decline in EUR/JPY linked to French political issues, Trump’s tariff threats on the US Dollar, and how the Euro responds to geopolitical and fiscal pressures. This complicated market is shaped by various political and economic factors. The Japanese yen is showing slight strength against the dollar, influenced by recent political shifts. The collapse of the governing coalition raises questions about the Bank of Japan’s future independence and its plans for interest rate hikes. This political uncertainty is currently more impactful than other factors affecting the currency. Market expectations for a rate hike from the Bank of Japan have decreased significantly in the past week. Overnight index swaps now suggest only a 4 basis point hike for the October 30 meeting, down from the 14 points expected last week. This indicates that traders believe the political unrest will make the central bank more cautious.

Technical Standpoint

Technically, the current rally in the USD/JPY pair seems overextended, as the Relative Strength Index (RSI) has reached 70. A drop below the 152.14 level could lead to a major bearish reversal. We recall that the Ministry of Finance intervened heavily in 2022 and 2024 when the pair got close to these levels, which is still an important psychological barrier. For derivative traders, this situation suggests it might be time to bet on yen strength. Buying put options on USD/JPY with expiration dates after the October 30 BoJ meeting could be a smart way to profit from a downturn. This strategy offers downside exposure while limiting risk to the premium paid. Implied volatility is also rising, with the Cboe JPY Volatility Index (JYVIX) reaching 11.5, its highest level since the market’s uncertainty in August 2025. This increase indicates that options are getting more expensive and reflects the market’s expectation of larger price movements. Strategies that benefit from volatility may be worth exploring. Lastly, we’re keeping an eye on global factors that could influence movements, like ongoing U.S. discussions about potential new tariffs on imports. Recent data also reported that Japan’s trade surplus grew to ¥850 billion in September 2025, providing some fundamental support for the yen. These external pressures might hasten a shift away from the US dollar. Create your live VT Markets account and start trading now.

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