The US Dollar (USD) bounced back overnight, moving closer to the 155 mark against the Japanese Yen (JPY). This increase was fueled by buying during the Tokyo fix and investments flowing into the US, even as Japanese officials issued warnings. Many believe that real intervention from Japanese authorities may not happen until the USD/JPY hits 160. Market Fluctuations in USD/JPY The dollar dipped briefly after ADP reported an unexpected loss of 11,000 jobs a week through October. This contradicted earlier estimates that showed an increase of 42,000 jobs for the same timeframe. However, the dollar quickly regained its strength. Support for the USD/JPY pair comes from direct US investments, pushing it toward the key resistance level of 155. Although Japanese verbal interventions are increasing, market sentiment shows hesitation to sell USD/JPY at this price. Many expect the pair could reach 160, especially as we approach the year-end when trading volumes thin out, making physical intervention less likely until that level is reached. The US dollar is testing the ¥155 level, an important psychological barrier. The main reason for this trend is the large interest rate gap between the US Federal Reserve, which keeps rates around 5%, and the Bank of Japan, which maintains very low rates. This difference, now over 500 basis points, continues to drive the carry trade; traders borrow yen to invest in higher-yielding dollars. Given this upward trend, buying call options with strike prices above ¥155 seems wise for the upcoming weeks. Many market participants are eyeing the ¥160 level, where Japanese authorities may opt for physical intervention. Selling USD/JPY now feels risky, like standing in front of a slow-moving train, especially with expected lower market liquidity as the year winds down. Implications of Japanese Verbal Intervention We should pay attention to the verbal warnings from Japanese officials, although they have lost some effectiveness over time. Looking back at interventions in 2022 and 2024, the Ministry of Finance acted only after sharp price movements, and the market seems ready to challenge their stance at a higher level. Therefore, betting against the pair based solely on these warnings seems unwise for now. Recent data supports this view, as the latest US nonfarm payrolls report for October 2025 shows a stable labor market, bolstering the strength of the dollar. Additionally, foreign investment in US assets continues to show solid inflows, providing continuous support for the dollar. This underlying demand helps the USD/JPY pair absorb weaker data points, such as the recent ADP report. For those trading derivatives, this suggests strategies to profit from ongoing upward movement while managing the risk of sudden reversals. A bull call spread, such as buying a ¥156 call and selling a ¥160 call, could allow for upside participation while managing risks if intervention occurs sooner than expected. This strategy helps you join the trend without being fully exposed to the risks associated with the Ministry of Finance’s actions. Create your live VT Markets account and start trading now.

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