The USDJPY surged after Japan’s Prime Minister Ishiba resigned over the weekend, with the pair rising from Friday’s close at 147.382 to a peak of 148.57 in the Asian session. This increase was above the 50% midpoint of the range since August 1. Momentum waned quickly, with the exchange rate falling to a European morning low of 147.457, briefly dropping below the 200-hour moving average of 147.727. The currency pair has since stabilised but remains volatile as traders assess the impact of Ishiba’s resignation and a weak U.S. jobs report from Friday.
Last week, buyers managed to push the USDJPY above its 200-day moving average at 148.735 on Tuesday and Wednesday, but momentum stalled against the 61.8% retracement at 149.110. This allowed sellers to regain control against the 200-day moving average and the 50% midpoint. For buyers to regain momentum, a move above the 147.95–148.166 swing area and the falling 100-hour moving average at 148.192 is needed. Without such a move, the downward trend may continue, with a break below the current low (147.45) potentially leading to levels between 146.54 and 146.80.
Market Forces In Play
The market is currently caught between two major forces. Last Friday’s weak U.S. jobs report, which showed non-farm payrolls at a disappointing +95,000 against expectations of +180,000, has put downward pressure on the dollar. However, the surprise resignation of Japan’s Prime Minister Ishiba over the weekend created political uncertainty that initially weakened the yen.
This political instability in Japan makes it less likely that the Bank of Japan will proceed with its anticipated interest rate hike later this year. We are seeing market expectations for a hike push out from the fourth quarter of 2025 into early 2026. This policy divergence is adding to the pair’s choppiness.
From a technical standpoint, sellers appear to have the upper hand. We saw them successfully defend resistance at the 149.11 level last week, and again at the 200-day moving average around 148.73. Today’s spike failed to hold above 148.55, reinforcing the view that momentum is to the downside.
Option Strategies
This environment of conflicting fundamental drivers and clear technical resistance is causing volatility to rise. We have seen one-month implied volatility on USD/JPY options jump from a stable 8% to over 11% in just a few trading sessions. This makes option strategies particularly attractive for navigating the expected price swings.
Given the bearish technical setup, we should look at buying put options to capitalize on a potential move lower. A break below the day’s low of 147.45 would be our trigger, targeting the swing area between 146.54 and 146.80 in the coming weeks. Using put spreads can help lower the cost of entry while defining risk in this uncertain market.
For those wanting to play the increased volatility without a strong directional bias, a long straddle could be effective. Any significant move driven by new political headlines from Japan or further weak data from the U.S. would benefit such a position. A sustained move back above the 148.20 area would be required for us to reconsider a bullish stance.
