USD/JPY saw a bounce back in the Asian morning, recovering from Friday’s drop following Powell’s comments at Jackson Hole. The pair is now close to 147.50, even without any new news. Bank of Japan Governor Ueda stressed the need for more women and foreign workers to meet Japan’s labor challenges arising from an ageing population. Friday’s market move is viewed as a ‘gap,’ indicating a potential for pullback, though caution against overstating this is advised.

Trump’s Tariff Plans

In other market updates, Trump is pushing for a 15-20% minimum tariff on EU goods, causing the EUR/USD to fall. Powell’s shift in focus reveals rising job market risks, with the Fed expected to cut rates three times in 2025, according to Pantheon. Trading in foreign exchange comes with high risks, and it may not suit all investors. It is crucial to assess your investment goals and risk tolerance before trading, and seek advice from financial experts. InvestingLive provides links to economic and market data but does not offer investment advice or support specific opinions. Past performance does not guarantee future results, and compensation may be received from website advertisers.

USD/JPY Market Caution

The rise of USD/JPY to near 147.50, despite dovish signals from the Fed, shows market hesitation. It’s worth noting that similar levels in late 2023 led to strong warnings from Japanese officials, making this area risky for chasing the dollar higher. A move toward 150 could provoke a stronger reaction from Tokyo. Fed Chairman Powell’s focus on job market risks is significant. With the market anticipating three interest rate cuts in 2025, the dollar’s strength seems fragile. Recent data indicates US core inflation has dropped to 2.8%, and July 2025’s Non-Farm Payrolls report showed only a 150,000 job increase, giving the Fed room to ease its policy. Meanwhile, the Bank of Japan remains silent on policy changes, keeping the yen weak. Historically, Japan’s core inflation, which briefly surged above 2.5% in mid-2024, has struggled to stay elevated, leaving Governor Ueda with little reason to raise rates. This difference in policies is key to keeping USD/JPY high. Global risks are increasing volatility, with talks of new US tariffs and Evergrande’s final delisting creating uncertainty. This is not a moment for a relaxed, one-way bet. The VIX, a measure of stock market volatility, has climbed from a low of 13 to about 17 in the past month, indicating traders are becoming more concerned about sudden market shifts. Given this situation, buying USD/JPY put options for October or November 2025 offers a defined-risk way to bet on a dollar decline. This strategy allows traders to profit if Fed rate cuts weigh on the dollar while limiting potential losses to the premium paid. This is a reasonable approach, with intervention risks limiting any upside. For those anticipating a significant move but uncertain of the direction, a long straddle options strategy could work well. By purchasing both a call and put option at the same strike price and expiration, a trader can profit from a large price swing either way. This is essentially a bet on the rising volatility we expect in the coming weeks. Create your live VT Markets account and start trading now.

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