The USD/JPY has been rising for five straight days as the Yen weakens, partly due to expected financial measures in Japan. Currently trading at 152.68, this currency pair is influenced by forthcoming stimulus plans in Japan and key inflation data from both Japan and the US.

Economic Indicators and Speculations

Japan plans to allocate ¥14 trillion to boost domestic spending and control inflation. Investors are eager to see Japan’s consumer price index (CPI) and the au Jibun Bank PMI data, with the core CPI potentially increasing to 2.9% year-on-year (YoY). It is unlikely that Japan will change interest rates anytime soon, with little chance of an increase by late 2023. In the US, market dynamics are tense due to trade issues with China and a possible government shutdown. Nevertheless, the US Dollar remains strong, with a projected 3.1% YoY increase in headline CPI. The US Dollar Index is stable near 99.00, as traders await upcoming US CPI data. In today’s trading, the Japanese Yen is weaker against most major currencies but performs strongest against the British Pound. The Yen’s varying strengths against USD, EUR, JPY, CAD, AUD, NZD, and CHF indicate an active market. As the USD/JPY rises steadily to 152.68, we approach a crucial area. The market is preparing for significant inflation data from both the US and Japan tomorrow, creating a heightened environment for short-term trading. The proposed ¥14 trillion stimulus in Japan is putting more downward pressure on the Yen.

Market Volatility and Strategy

With the upcoming data releases, we can expect increased volatility. Recent figures from the derivatives market show that 1-week implied volatility for USD/JPY has jumped to 13.8%, reflecting market uncertainty. Options like straddles or strangles could be beneficial, as they would profit from significant price moves in either direction after the announcements. The outlook remains toward a weaker Yen, as the Bank of Japan is not expected to raise rates until at least early 2026. This situation is reminiscent of 2023 when the pair surged significantly. For those optimistic about USD/JPY, buying call options or setting up bull call spreads could be a way to take advantage of further upward movement. However, be cautious about intervention risks from Japanese authorities, similar to actions seen in late 2022 and 2024 when the pair surpassed 150-152. An unexpected intervention by the Ministry of Finance could lead to a rapid 300-500 pip drop. As a safeguard, buying out-of-the-money puts can provide a cost-effective hedge against abrupt market changes. On the US side, traders expect a high likelihood of a Federal Reserve rate cut next week, with fed fund futures suggesting an 82% chance. If the US CPI figure is higher than the anticipated 3.1%, this could challenge that assumption, strengthening the Dollar and pushing USD/JPY into the intervention risk zone. A lower-than-expected CPI reading could support the narrative for a rate cut and potentially slow the pair’s ascent. Given the Yen’s weakness across the board, consider exploring other currency pairs to express this view. Over the last 24 hours, the Yen has dropped the most against the Australian Dollar and British Pound. Trading long on pairs like GBP/JPY or AUD/JPY could provide an alternative strategy that is less affected by the immediate volatility of the US CPI release. Create your live VT Markets account and start trading now.

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