Insights 
VT 
The Japanese Yen weakens as risk sentiment improves after Trump softens his stance on China. Trump states that the 100% tariffs on Chinese imports are “not sustainable” and plans to meet Xi at the APEC Summit in South Korea.
USD/JPY strengthens as Trump’s softer stance on China boosts US Dollar demand. USD/JPY rebounds after dipping to two-week lows in the Asian session, with the US Dollar stabilised across the board.
USD/JPY Trading Dynamics
USD/JPY is trading around 150.38, recovering from an earlier low near 149.38, reflecting renewed US Dollar demand. This move is driven by unwinding defensive positions ahead of the weekend.
Trump’s comments suggest a step back from a hardline tone, with a confirmed meeting with Xi Jinping at the APEC Summit. Meanwhile, markets expect back-to-back rate cuts by the Federal Reserve at its October and December meetings.
St. Louis President Alberto Musalem advises a balanced approach, mentioning limited room for easing before policy becomes accommodative. Bank of Japan Governor Kazuo Ueda stresses the need for more data before assessing adjustments.
OIS pricing shows a 10-20% chance of a rate hike at the October meeting, leaning towards steady policy. A Reuters poll indicates Japan’s core CPI likely rose to 2.9% YoY in September, up from 2.7% in August.
Market Opportunities and Risks
The improved risk sentiment, driven by a softer US-China trade stance, is pushing USD/JPY toward the 150.50 level. We see this as a temporary dollar-positive move, as markets are now focused on incoming US data. With the CME FedWatch tool showing two 25-basis-point rate cuts fully priced in for the rest of 2025, dollar strength may be limited.
Recent data supports the case for Federal Reserve easing, making aggressive long USD positions risky. The September jobs report showed a modest addition of 155,000 jobs, while the latest core CPI reading cooled to 3.6% year-over-year. These figures give Fed officials like Musalem the justification they need to support a cut at the upcoming October meeting.
On the other side, the Bank of Japan remains cautious, with Governor Ueda likely to hold rates steady this month despite Japan’s core inflation recently touching 2.9%. We must remember the Ministry of Finance’s interventions back in 2022 and 2024 when the dollar-yen pair crossed the 150-152 threshold. This history creates a significant risk of similar action, potentially capping gains around these levels.
This dynamic suggests using options to trade potential volatility in the coming weeks. A long straddle, buying both a call and a put option with the same strike price near 150.50, could be effective. This strategy would profit from a large price swing in either direction, whether from a surprisingly dovish Fed or unexpected intervention from Japan.
The de-escalation in trade tensions has also lowered implied volatility, making options cheaper to purchase right now. We see this as an opportunity to position for a spike in volatility ahead of the Fed’s decision on October 30th and the APEC summit in November. The current calm in the market is unlikely to last with these major events on the horizon.
