Insights 
VT 
On Tuesday, the Japanese Yen gains support due to changes in global risk sentiment. Bank of Japan Governor Kazuo Ueda hinted at potential rate hikes soon, boosting the Yen. The US Dollar pulled back from a three-month high, affecting the USD/JPY pair.
A marked appreciation of the Yen is challenged by uncertain Bank of Japan rate hike timings. Japan’s Prime Minister Sanae Takaichi plans increased fiscal spending, complicating matters. Fewer expectations for a US Federal Reserve rate cut could limit USD losses.
Interest Rate Dynamics
Interest rate hike commitment from the Bank of Japan is uncertain, with Takaichi’s pro-stimulus stance impacting the Yen. The Tokyo Consumer Price Index remains above 2%, supporting the case for more policy adjustments. Currency intervention risks from Japan may temper Yen losses, while strong US Dollar buying bolsters USD/JPY.
From a technical viewpoint, USD/JPY broke key levels, suggesting potential gains beyond 154.75-154.80 towards 155.00. Pullbacks may find support near 154.00, followed by crucial resistance zones. Breaking these could negate a positive outlook for USD/JPY.
In financial terms, “risk-on” markets lead to rising stocks and commodity currencies, while “risk-off” markets see bond gains and safe-haven currency rises. The Australian, Canadian, and New Zealand Dollars rise in “risk-on” times, while USD, JPY, and CHF benefit in “risk-off” scenarios.
We are seeing a classic conflict between Japan’s central bank and its government, creating a difficult environment for the yen. While Bank of Japan Governor Ueda is signaling a potential rate hike, the new Prime Minister’s stimulus plans are likely to weaken the currency. The latest Tokyo Core CPI data for October, at 2.7%, marks 42 straight months above the BoJ’s target, adding pressure on the central bank to act.
Market Intervention Risks
On the other side of the trade, the US Dollar remains firm because the Federal Reserve is holding steady. The Fed has already cut rates twice in 2025 from its peak, but the unexpectedly strong addition of 210,000 jobs in last month’s payrolls report has dampened hopes for another cut in December. This policy difference, where US rates are much higher than Japan’s, continues to support the USD/JPY pair.
The risk of direct intervention from Japanese authorities is the main factor keeping the USD/JPY from running too high. We remember them stepping in to defend the yen when the rate crossed the 151 level back in late 2023, so traders are nervous as we approach the 155.00 psychological level. This fear creates a potential ceiling on the pair, making large bullish bets risky.
This high level of uncertainty makes simply betting on the direction of USD/JPY very challenging in the coming weeks. A better approach for derivative traders might be to buy volatility using options. This means we could profit from a large price swing in either direction, which seems more likely than a slow drift.
For instance, one could consider buying short-dated call options with a strike price near 155.00 to capture any further upward momentum driven by interest rate differentials. At the same time, buying protective puts below the 153.00 support level could hedge against a sudden drop caused by intervention or a major risk-off event.
The ongoing US government shutdown, now at a record-breaking 35 days, is adding to global uncertainty and could trigger a “risk-off” mood. Such an event would typically strengthen safe-haven currencies like the yen, limiting further gains for USD/JPY. Current economic estimates suggest this shutdown could shave 0.2% off US Q4 GDP growth if it isn’t resolved soon.
