The Japanese Yen (JPY) is rising during the early European session, reducing the USD/JPY pair to 148.00. Although the Bank of Japan (BoJ) has mixed opinions, it is expected to continue its policy normalisation.
Geopolitical tensions and possible US government shutdowns are enhancing the appeal of the JPY. The BoJ’s hawkish position differs from predictions of two rate cuts by the US Federal Reserve before year-end, keeping the USD weak.
Japan’s Economic Performance
Japan’s Industrial Production decreased by 1.2% in August, surpassing expected figures, with Retail Sales falling 1.1% year-on-year. These declines are attributed to concerns about US tariffs, with the White House adjusting timber and lumber imports.
Market speculation persists around a possible BoJ rate hike, contrasting with anticipated Fed rate cuts. Despite speculative pressures, the JPY maintains its ascent, supported by political uncertainty and economic performance.
The USD/JPY pair is maintaining support around a 200-day Simple Moving Average. Potential resistance is around the 149.00 mark, with a possible downward movement if the pair falls below the 148.40 region, indicating vulnerability to further decline.
As of late September 2025, the view is that the US Dollar will continue to weaken against the Japanese Yen. The primary driver for this is the divergence in monetary policy between the Bank of Japan and the US Federal Reserve. This suggests the path of least resistance for the USD/JPY pair is to the downside in the coming weeks.
Monetary Policy Divergence
We see the Bank of Japan on a clear policy normalization path, a journey it began when it ended its negative interest rate policy back in March 2024. With Japanese inflation consistently hovering above the 2% target since then—data from the Statistics Bureau of Japan shows Tokyo Core CPI has remained elevated—pressure is mounting for further tightening. This underlying hawkish sentiment is providing a strong tailwind for the Yen.
Conversely, the US Federal Reserve is expected to continue its easing cycle, which we have seen unfold over the past year. As US inflation has cooled from its 2023 peaks to more manageable levels and the labor market shows signs of slowing, the market is pricing in at least one more rate cut before the end of 2025. This narrowing of the interest rate differential between the US and Japan naturally weighs on the US dollar.
Adding to the Yen’s strength is its status as a safe-haven asset, which becomes more attractive during times of uncertainty. Concerns about a potential US government shutdown, an issue we saw come to a head in late 2023, are resurfacing and pushing investors towards the perceived safety of the JPY. These geopolitical and domestic US political risks are providing an additional layer of support for a stronger Yen.
For derivative traders, this outlook suggests positioning for a drop in USD/JPY. Buying put options on the pair with strike prices below the current 148.00 level could be a straightforward strategy. This allows for profiting from a downward move while limiting the maximum loss to the premium paid for the options.
The technical picture supports this bearish bias, with the pair currently testing the critical 200-day Simple Moving Average near 148.40. A sustained break below this level would be a strong signal for further declines, making the pair vulnerable to a slide towards the 147.50 and then the 147.00 support zones. Traders might use this technical breakdown as a trigger to enter or add to short positions.
To manage risk against a potential surprise rally, traders could consider using a bear put spread. This involves buying a put option at a higher strike price and simultaneously selling another put at a lower strike price. This strategy reduces the initial cost of the trade and defines the maximum profit and loss, offering a more controlled way to express a moderately bearish view on USD/JPY.
