Insights 
VT 
The USD/JPY pair continues its upward movement, trading above 152.50 in response to fiscal concerns in Japan. This rise occurs during the early Asian session as the US Dollar appears stronger against the Japanese Yen amidst an ongoing US government shutdown.
The US Senate’s failure to pass funding proposals extends the shutdown into its ninth day, with the lack of recent US economic data strengthening the Dollar. The Federal Reserve’s September meeting minutes hint at potential rate cuts, contributing to a cautiously dovish outlook that could affect the USD’s near-term performance.
Japan’s Economic Developments
In Japan, the election of Sanae Takaichi as leader of the ruling Liberal Democratic Party brings expectations of increased fiscal spending. This development leads traders to reduce expectations of a rate hike by the Bank of Japan.
Factors influencing the Yen include Japan’s economic performance, BoJ decisions, the Japan-US bond yield differential, and overall risk sentiment. Currently, market indicators show only a 26% chance of the BoJ raising rates at its next meeting, down from nearly 60% prior to Takaichi’s election.
We remember when USD/JPY pushed past 152.50, driven by fears of Japan’s fiscal policy and a hands-off Bank of Japan (BoJ). At that time, even a US government shutdown couldn’t weaken the dollar against the yen. The market was completely focused on yen weakness, ignoring problems elsewhere.
That old dynamic has changed significantly as we look at the market today in October 2025. The BoJ finally ended its negative interest rate policy back in 2024 after inflation remained stubbornly above its 2% target for over two years. Japan’s latest nationwide core CPI reading from September 2025 was 2.7%, confirming that the pressure for policy normalization continues to build.
US and Japan Interest Rate Dynamics
Still, the interest rate difference between the US and Japan remains massive, which is keeping the yen from strengthening too much. The Federal Reserve’s key rate is sitting at 4.75%, while the BoJ’s overnight call rate is just 0.10%. This huge gap continues to make holding dollars more profitable than holding yen.
However, the focus is now shifting back to the health of the US economy. Recent data, like the September 2025 jobs report showing Non-Farm Payrolls growth slowing to just 95,000, is increasing bets that the Fed will have to start cutting rates in early 2026. This is a direct reversal from the situation in the past, where weak US data was largely ignored.
Given this changing landscape, traders should consider positioning for potential yen strength in the coming weeks. Purchasing USD/JPY put options provides a way to profit from a falling dollar-yen exchange rate while strictly limiting the risk if the pair unexpectedly rallies again. Looking at options expiring in December 2025 with a strike price around 145.00 could offer a favorable risk-to-reward setup.
This strategy accounts for the increasing possibility that the BoJ may signal another small rate hike, while the Fed adopts a more dovish tone. The high volatility we are seeing means outright shorting the currency pair is risky. Using options helps to define and cap potential losses as these two central bank policies begin to move in opposite directions.
