In October, Japan’s labour cash earnings increased by 2.6% year-on-year, surpassing expectations of a 2.2% rise. This development comes amidst other recent economic data, such as Japan’s GDP declining 0.6% quarter-on-quarter in the third quarter of 2025, slightly worse than the anticipated 0.5%.
The USD/JPY has decreased below 155.50 as a US Federal Reserve rate cut approaches and due to military tensions between Japan and China. Additionally, Japanese aircraft have reportedly been targeted by Chinese fighter jets near Okinawa, intensifying these tensions.
Currency Market Updates
Elsewhere, the Canadian dollar has strengthened following a positive labour report, while the Dow Jones Industrial Average has edged higher due to expectations of a Federal Reserve rate cut as PCE inflation cools. The EUR/USD pair experienced some selling pressure after reaching highs, though it remains elevated compared to a November low.
In the commodities market, gold prices have risen above $4,200 due to anticipation of a Federal Reserve interest rate cut, while silver has marked an all-time high despite reversals in gold and mining stocks. Ripple continues to face bearish pressures, even as XRP spot ETFs see steady inflows.
We are seeing stronger-than-expected wage growth in Japan at 2.6%, which normally suggests a more aggressive Bank of Japan. This is the fastest pace of wage inflation we have seen since the post-pandemic recovery period of early 2024. This trend creates a direct conflict with the recent GDP report showing the economy actually contracted by 0.6% in the third quarter of 2025.
Given the mix of a looming Fed rate cut and rising military tensions with China, the path of least resistance for USD/JPY appears to be downward. The dollar is weakening globally, and the yen could attract safe-haven bids if the Okinawa situation escalates further as it did in late 2024. Traders may consider buying put options on USD/JPY to profit from a potential decline below the 155.00 level.
Federal Reserve Decision Anticipation
The market is almost entirely focused on the Federal Reserve’s decision this Wednesday, with the CME FedWatch Tool indicating over a 90% chance of a rate cut. This expectation is solidified by recent data showing Core PCE inflation, the Fed’s preferred measure, cooling to 2.8% year-over-year in October 2025. Consequently, we anticipate continued weakness in the US Dollar, which supports using call options on pairs like EUR/USD and GBP/USD.
Gold’s move above $4,200 an ounce is a direct result of expectations for lower interest rates, continuing the major rally that began when the Fed pivoted away from its tightening cycle of 2022-2024. However, we are seeing a potential warning sign as Silver hits a new all-time high while gold has not. This divergence suggests some traders could look at call options on gold while remaining cautious about silver’s speculative fever.
