The USD/JPY is dropping as the US Dollar loses strength because of increasing trade tensions between the US and China. President Trump announced 100% tariffs on Chinese imports, and China responded by restricting rare-earth exports. This has affected how markets feel. The ongoing US government shutdown is shaking confidence. The Senate plans to vote on a bill to reopen federal agencies. Traders expect the Federal Reserve to cut interest rates, with a 97% chance of a cut in October and 95% in December.

Japan’s Political Situation

Japan’s political landscape is uncertain. Takaichi from the Liberal Democratic Party is waiting for parliamentary approval to become Prime Minister. The upcoming parliamentary vote on a new Prime Minister adds to this uncertainty, and no consensus on the date has been reached. In currency trading, the Japanese Yen gained strength against the US Dollar, with rates showing JPY/USD. It also dropped -0.24% against the Euro and -0.56% against the Pound, along with fluctuating rates against other currencies. The currency heat map indicates major currency movements, with the Japanese Yen notably stronger against the US Dollar today. With the US Dollar under pressure, we can expect further declines in the USD/JPY pair. Trade tensions, a possible government shutdown, and likely Fed rate cuts create a strong bearish outlook for the dollar. This suggests that the recent drop from 153.27 may continue in the coming weeks.

Strategies for Traders

Traders should consider strategies that benefit from a decreasing USD/JPY. Buying put options is a simple way to profit from this downward trend while limiting losses to the premium paid. It’s wise to do this as implied volatility is likely to rise ahead of important events in late October and early November. We’ve seen similar situations in the past, notably during the US-China trade war of 2019. Back then, tariff threats led to a more than 3% drop in USD/JPY in just weeks, as investors moved their money to the safer Yen. With 100% tariffs now being discussed, we might see an even stronger response this time. The nearly 100% probability of rate cuts from the Fed in both October and December weighs heavily on the dollar’s value. Additionally, the government shutdown is affecting the economy; the Congressional Budget Office had estimated that the 35-day shutdown in 2018-2019 removed $11 billion from the US economy. Considering these factors, the USD/JPY likely has a downward path ahead. Important dates to watch include the Fed’s decision on October 30 and the tariff deadline on November 1. We should set up derivative positions to capture expected price changes around these events. Thus, buying puts with expiration dates in mid-to-late November would be a smart move to prepare for expected market turbulence. Create your live VT Markets account and start trading now.

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