USD/JPY climbed to 150.75 after a brief dip below 149.50. This rise comes as Japan’s Liberal Democratic Party (LDP) forms a coalition with the centre-right Innovation Party (Ishin). Together, they hold 231 seats in the lower house, just two seats shy of a majority. This coalition could enable Sanae Takaichi to become Prime Minister, but her ambitious fiscal plans might encounter difficulties. Takata Hajime from the Bank of Japan (BOJ) highlighted his hawkish stance, stating that now is a good time to raise interest rates. In a recent BOJ meeting, Takata and another board member supported a 25 basis points increase, while most voted to keep the rate at 0.50%. Some market analysts believe a rate hike is likely during the meeting on October 30.

Japan GDP Growth and Inflation

Japan’s Tankan business survey shows signs of recovery in GDP growth, with inflation nearing the BOJ’s 2% target. The USD/JPY rate may decline as it currently trades higher than levels suggested by the US-Japan bond yield difference. The FXStreet Insights Team gathers market analysis from top experts and includes insights from various analysts. The rise in USD/JPY to 150.75 marks an important moment for us. Japan’s new coalition government is relatively weak, missing a majority by just two seats, which may limit the ambitious fiscal plans of the incoming prime minister. This political context might help stabilize the yen against fears of increased government spending. We are closely monitoring the BOJ meeting on October 30. With board member Takata calling for a rate hike and Japan’s core inflation holding steady at 2.8% in September, the pressure to take action is building. The market is only anticipating a 26% chance of a rate increase, which presents a significant opportunity if the BOJ surprises us.

Investment Strategies Ahead of BOJ Meeting

For derivative traders, buying short-dated JPY call options or USD/JPY put options that expire after the BOJ meeting is a smart strategy. This approach allows for defined risk while positioning for a potential hawkish surprise that may strengthen the yen. We expect implied volatility to rise as the meeting date nears. It’s also important to keep in mind that the Ministry of Finance has a history of intervening to strengthen the yen when USD/JPY nears the 152 level, as seen in late 2022. Currently, the US-Japan 10-year yield spread is at 360 basis points, still favoring the dollar, but USD/JPY is trading above a level that this wide spread would suggest. This disconnect indicates a risk of a lower USD/JPY in the coming weeks. Create your live VT Markets account and start trading now.

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