The USD/JPY pair is stable above 152.40. The dollar has performed well this week, even though it couldn’t break through 153.00. Everyone is watching Fed officials Powell and Bowman for their upcoming speeches. Sanae Takaichi’s surprising win in Japanese politics raises worries about possible looser fiscal and monetary policies, which might delay interest rate hikes. Etsuro Honda believes the Bank of Japan (BoJ) should hold off on increasing rates for now.

Fed Minutes Indicate Possible Changes

In the United States, the Fed minutes hint at possible interest rate cuts in the next few months, even amid the government shutdown. Traders are eager for insights on Fed policy from Powell and Bowman’s speeches. The BoJ manages monetary policy with a focus on price stability, aiming for 2% inflation. Since 2013, it has used very loose policies, but eventually shifted to controlling bond yields and negative rates. These strategies led to a weaker yen, but in 2024, the situation changed due to rising inflation. The BoJ’s stimulus efforts have influenced the yen’s value, diverging from other central banks that have higher interest rates. In 2024, the BoJ adjusted its policy as inflation and wage expectations rose, moving away from its previous approach due to energy price pressures. Currently, the USD/JPY is in a narrow range, struggling to exceed 153.00 but finding solid support above 152.40. This consolidation often occurs before a significant price movement, so we are preparing for increased volatility. We view this as an opportunity to implement options strategies that can profit from a breakout.

Japan’s New Political Landscape

Japan’s new political leadership is a key factor now, seemingly supporting a weaker yen to boost the economy. Last week’s preliminary data showed Japan’s Q3 GDP unexpectedly fell by 0.2%, giving the new government a reason to urge the BoJ to pause its tightening measures. A dovish BoJ signals further weakness for the yen. Meanwhile, the US Dollar faces its own challenges, with many anticipating Federal Reserve rate cuts this month and in December. The CME FedWatch Tool shows an 85% chance of a 25-basis point cut at the October 29th meeting. Today’s speeches from Fed officials are crucial to confirm whether market expectations are accurate. We cannot overlook the risk of the Japanese authorities directly intervening to strengthen the yen. Historically, we are now trading above the 151.90 level, which triggered significant yen-buying intervention in October 2022. Any rapid increase could prompt a swift reaction from the Ministry of Finance. Given these conflicting factors, a cautiously bullish outlook on USD/JPY seems appropriate, but with controlled risks. We are considering strategies like bull call spreads to benefit from a potential rise towards 154.00 in the coming weeks. This approach provides upside potential while limiting losses if Japanese officials intervene or if the Fed presents a more hawkish tone. Create your live VT Markets account and start trading now.

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