Insights 
VT 
The Japanese Yen shows a minor recovery from its lowest levels since February against the firm US Dollar. Last week, Bank of Japan Governor Kazuo Ueda suggested a possible rate hike in December or January, potentially stabilising the Yen.
Uncertainty surrounds when the next BoJ rate hike will occur, compounded by Japan’s new Prime Minister’s aggressive fiscal plans, which may limit Yen appreciation. The USD benefits from the US Federal Reserve’s hawkish stance, strengthening the USD/JPY pair.
BoJ Rate Hike Uncertainty
The BoJ remains cautious on further rate increases due to the Prime Minister’s pro-stimulus approach. Recent data shows Tokyo’s core Consumer Price Index exceeds the BoJ’s 2% target, potentially justifying policy tightening. Despite this, potential currency intervention could limit Yen declines amid robust US Dollar support.
The USD Index maintains its uptrend, helped by Fed Chair Jerome Powell dismissing market expectations of a policy rate cut. The ongoing US government shutdown raises economic concerns, possibly affecting prolonged USD gains.
Technically, the USD/JPY broke key barriers, indicating potential further gains. Support may be found around the 154.00 mark. The BoJ’s move from ultra-loose policy and interest rate hikes comes amid a declining Yen, rising inflation, and potential wage growth in Japan.
US Dollar Strength Against The Yen
We see the US Dollar holding firm against the Yen, supported by a Federal Reserve that appears committed to its hawkish stance. The latest US Non-Farm Payrolls data from October 2025 showed a resilient labor market, adding 210,000 jobs, which gives the Fed little reason to signal rate cuts for December. This fundamental backdrop suggests traders can expect continued underlying strength in the USD/JPY pair.
On the other side, the Bank of Japan is facing pressure to act as Japan’s national Core CPI for October registered at 2.9%, well above its target. Governor Ueda’s hints of a rate hike in the next two months are being taken more seriously than they were earlier in the year. This creates a potential ceiling for the USD/JPY and makes buying call options with strikes above 155.00 a riskier proposition in the coming weeks.
We must not forget the sharp Yen rally that followed the Ministry of Finance’s direct intervention back in late 2022 when the pair was trading in a similar territory. The threat of similar action now that we are hovering above 154.00 means holding long USD/JPY positions carries significant tail risk. Traders should consider buying out-of-the-money JPY calls or USD/JPY puts as a hedge against a sudden policy shock.
Complicating the Bank of Japan’s path is Prime Minister Takaichi’s pro-stimulus agenda, with her cabinet having recently approved a supplementary budget of over ¥15 trillion. This fiscal spending could counteract monetary tightening, potentially delaying a rate hike and keeping the Yen depressed. This policy divergence is a key reason the pair has remained elevated since the BoJ’s first landmark rate hike back in March 2024.
We are also watching the US government shutdown, which has now dragged on for over a month with little sign of a resolution. A prolonged shutdown could begin to weigh on US economic data, potentially forcing the Fed to soften its hawkish tone. This is a key domestic risk that could cap further USD gains against all currencies, including the Yen.
With the pair holding above the key 154.00 technical level, a test of 155.00 seems plausible. However, given the high risk of intervention and the uncertain BoJ timeline, traders might look at options strategies like bull call spreads. This would allow for participation in further upside toward the 155.00 mark while capping potential losses if Japanese authorities decide to step in.
