**Yen Appreciation Expectations** The US government shutdown has lasted 20 days, and this political deadlock may limit gains for the USD/JPY currency pair. Prices have risen, with technical indicators suggesting a potential move towards the 151.75 mark. Key resistance levels are being monitored. However, immediate support is found in the 150.50-150.45 range. If this level is broken, it could lead to a drop to recent lows. The value of the Yen is closely linked to Japan’s economic performance and the Bank of Japan (BoJ) policy, as it is considered a safe-haven asset during times of uncertainty. Since 2013, the BoJ has maintained a very loose monetary policy, leading to Yen depreciation. Recently, however, the BoJ’s policy changes and rate cuts from other central banks have started to support the Yen. Over the last ten years, the differences between the BoJ’s policies and those of other banks, particularly the US Federal Reserve, have widened bond yield gaps, benefiting the US Dollar. With the BoJ planning to tighten its policies in 2024, along with rate cuts from other banks, this gap is narrowing. The Yen’s reputation as a safe haven attracts investors during market turbulence, increasing its value compared to riskier currencies. **Bank of Japan’s Position** The new coalition in Japan, led by Prime Minister Takaichi, is pushing for significant spending, putting pressure on the Yen. However, this political push for relaxed monetary policy contradicts the BoJ’s objectives. This conflict between political goals and central bank independence creates uncertainty for the currency in the coming weeks. The BoJ is backed by strong economic data, which supports its decision to tighten policy. Japan’s core inflation has remained above the 2% target for over three years, with September 2025 reporting a solid 2.8%. Additionally, the economy has expanded for five consecutive quarters through June 2025, giving the BoJ good reasons to consider another rate hike soon, which would bolster the Yen. On the other hand, the US Dollar appears weak. This morning, the CME FedWatch Tool indicates a high chance of a 25-basis-point rate cut by the Federal Reserve later this month, with another cut expected in December. The continuing US government shutdown, now in its fourth week, is also putting pressure on the Dollar, similar to what we saw during the lengthy shutdown in late 2018. The unclear direction of Japan’s political and central bank policies, combined with obvious weaknesses in the US Dollar, points to volatility as the main trading theme. A straightforward bet on USD/JPY could be risky with such strong influences pulling in different directions. For derivative traders, this environment makes strategies that benefit from price movements regardless of direction particularly appealing. A useful approach could be to buy volatility through a long straddle. This involves purchasing both a call and put option at the same strike price and expiration date. This strategy can be profitable if the USD/JPY pair makes a significant move above the 152.00 resistance or falls below the key 150.00 support level. The cost of this strategy is the premium paid, which represents the maximum potential loss if the pair remains stable. Create your live VT Markets account and start trading now.

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