Insights 
VT 
Japan’s Services Inflation Rises
The Japanese Yen (JPY) continues its decline against the US Dollar for the seventh consecutive day, influenced by expectations that Japan’s new Prime Minister, Sanae Takaichi, will maintain expansionary fiscal policies. Additional pressure on the Yen comes from easing US-China trade tensions, pushing the USD/JPY pair to a two-week high near the 153.25-153.30 level during the Asian session.
Recent data indicates Japan’s service-sector inflation increased in September, reinforcing speculations of a possible rate hike by the Bank of Japan (BoJ). This inflation rise contrasts the dovish expectations from the US Federal Reserve, which may limit the USD/JPY’s upward potential. Traders are likely to remain cautious ahead of critical announcements from the Fed and BoJ this week.
Japan’s Services Producer Price index increased for the second month in a row, reaching 3.0% in September, supporting arguments for BoJ tightening. Prime Minister Takaichi’s pro-stimulus policies, however, raise concerns regarding Japan’s fiscal health, dampening the Yen’s appeal.
In the US, the Consumer Price Index rose by 0.3% in September, contributing to a 3% annual rate increase. These figures support market expectations of upcoming Federal Reserve interest rate cuts, affecting the Dollar’s rebound capabilities, and allowing the Yen to find some support amidst varied central bank outlooks.
On the international front, progress is seen in US-China trade discussions, reducing the JPY’s safe-haven demand. Technically, surpassing the 153.25-153.30 area might push USD/JPY towards 154.00, while support remains at 152.65, with risks of further decline towards 151.00 if breached.
Monetary Policy Shifts Impact
The Bank of Japan, which targets a 2% inflation rate, launched an ultra-loose monetary policy in 2013 to combat low inflation. This involved Quantitative and Qualitative Easing (QQE) and negative interest rates, depreciating the Yen. The economic stimulus exacerbated currency devaluation, contrasting with other central banks raising rates.
The BoJ’s recent shift away from this policy in 2024 was in response to increased inflation pressures, which exceeded its target partly due to higher global energy prices and potential salary increases. These shifts impacted the currency market significantly, underscoring the ongoing monetary policy adjustments.
As of October 27, 2025, we are seeing the USD/JPY pair push higher, testing significant resistance near 153.30. This week is critical, with the US Federal Reserve announcing its policy on Wednesday, followed by the Bank of Japan on Thursday. The market is positioned for high volatility around these two major risk events.
The upward momentum is fueled by expectations that Japan’s new Prime Minister, Sanae Takaichi, will favor fiscal stimulus, which tends to weaken the yen. Easing trade tensions between the US and China are also reducing demand for the yen as a safe-haven asset. For derivatives traders, this suggests that call options betting on a move towards the 154.00 level could be attractive if the pair breaks cleanly above current resistance.
However, a strong case exists for a reversal, which would favor the yen. Japanese services inflation just hit 3.0%, and we’ve seen core inflation remain above the Bank of Japan’s 2% target for nearly 30 consecutive months. In contrast, US inflation has cooled to 3%, leading to high expectations for a Fed rate cut this week, with market pricing suggesting an over 85% probability.
This growing policy divergence—a potentially hawkish BoJ versus a dovish Fed—is a powerful fundamental driver that could strengthen the yen significantly. This points to opportunity in buying JPY call options or USD/JPY put options, especially if the BoJ signals a more aggressive pace of tightening than currently expected. That first rate hike back in March 2024, the first in 17 years, showed a willingness to shift policy, though the follow-through has been slow.
Given the conflicting signals between political pressure and economic data, implied volatility is likely to remain elevated. Traders could consider strategies like long straddles or strangles to profit from a large price swing in either direction following the central bank announcements. This approach allows one to capitalize on the expected volatility without needing to predict the specific outcome of the meetings.
Key technical levels are clear triggers for action in the coming weeks. A sustained move above the 153.30 supply zone would signal further upside towards 155.00, while a decisive break below the 152.00 support level could negate the bullish outlook. These levels can serve as strikes for option strategies or as entry points for futures positions.
