The USD/JPY exchange rate has dropped 0.6% to 146.40, hitting a three-week low. This decline follows a break in short-term technical levels and is influenced by US Treasury Secretary Bessent’s remarks encouraging a stronger yen. The US has voiced concerns about Japan’s currency policies, complicating trade talks. However, Japan maintains that exchange rates are not part of these discussions, though this position may change as talks evolve.

Market Dynamics

Currently, sellers have control as the pair falls below support levels around 146.61-70. If this trend continues, the next target could be the late July low of 145.85, with key focus on the 100-day moving average at 145.50 and a potential target of 145.00. The USD/JPY is facing significant pressure after breaking the 146.70 mark. This shift is driven by US Treasury comments suggesting that a stronger yen could be discussed in trade negotiations. This political influence adds risk for those holding long positions on the dollar. This perspective is supported by the latest US inflation data from July 2025, which reported a 2.8% increase, slightly under expectations. This raises questions about a possible pause in Federal Reserve policies. Meanwhile, Japan’s core inflation remains above the Bank of Japan’s target at 2.3% for the fifth straight month. This growing gap in policies suggests a weaker dollar against the yen.

Strategies for Traders

Given the current outlook, traders should consider strategies that could benefit from further declines in USD/JPY. Buying put options with strike prices close to 145.00 could be a smart, low-risk way to bet on a drop toward the 100-day moving average. Implied volatility for one-month USD/JPY options has risen to 9.2%, its highest in six weeks, indicating increased market uncertainty. Looking back, a similar scenario unfolded in early 2024 when official comments coincided with breaks in key technical levels, leading to a quick 4% drop in the pair over the next month. The current situation, influenced by both political and economic challenges, feels similar. Sellers are now focused on the late July 2025 low of around 145.85 as the next key target. If this level breaks, it could lead to testing the 100-day moving average at 145.50. We will closely monitor price movements around these support levels to look for signs of either a pause or a continuation of the downtrend. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now