The Japanese Yen has gained strength against the US Dollar, with USD/JPY falling after a two-day surge. The exchange rate is currently around 149.50 as the US Dollar Index drops from three-week highs, trading near 98.18 following the recent PCE inflation data. US inflation increased as expected. The core PCE Price Index rose by 0.2% month-over-month in August. The annual core rate stayed steady at 2.9%. The headline PCE index also met forecasts, increasing by 0.3% month-over-month, with the yearly rate ticking up to 2.7% from 2.6% in July.

Consumer Sentiment Trends

In terms of consumer sentiment, the University of Michigan Index fell to 55.1 in September from 55.4, and the Consumer Expectations Index dropped to 51.7 from 51.8. The one-year inflation expectation dipped slightly to 4.7%, while the five-year expectation decreased to 3.7%. In Japan, Tokyo’s CPI increased by 2.5% year-over-year in September, matching the pace from August. The core CPI, excluding fresh food, also rose by 2.5% YoY, which is below market expectations of 2.8%. Trade tensions have resurfaced, with the US announcing new tariffs on certain goods, affecting market interest in the Dollar. Today, on September 27, 2025, we’re observing interesting historical parallels in the USD/JPY pair. Previously, when the DXY was close to 98, it drove USD/JPY to a high of 149.50. Today, with the DXY around 105, we see the pair trading much higher and testing the 158 level.

Exploring Inflation Dynamics

The inflation dynamics of the past offer lessons for today’s market. At that time, a core PCE rate of 2.9% was significant for the Federal Reserve. The latest August 2025 data shows core PCE sticking at 2.8%, which supports the Fed’s decision to keep rates high for longer and backs the dollar. Japan’s inflation scene hasn’t changed much, contributing to the yen’s weakness. Historical data shows Tokyo’s core CPI at 2.5%, and our latest nationwide figures for August 2025 indicate core inflation at the same level. The persistent interest rate gap between the U.S. and Japan continues to weak the yen. Trade policy also creates market uncertainty. While the Trump-era tariffs on furniture and trucks are no longer relevant, new tensions related to semiconductor and electric vehicle supply chains are rising. This friction can lead to volatility and might trigger a shift to the yen if market risk appetite decreases. In this environment, traders should think about strategies that protect against a potential price drop. Buying USD/JPY put options with a strike around 156 could provide a low-cost opportunity to benefit from a slight decline in the next few weeks, limiting risk to the premium paid. Alternatively, if you expect the pair to stay high but with less volatility, consider a short strangle. This involves selling an out-of-the-money call option above 159 and a put option below 154. This strategy allows you to collect premiums from time decay but carries significant risk if the pair makes an unexpected move in either direction. Create your live VT Markets account and start trading now.

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