Insights 
VT 
The USD/JPY pair dips below 152.00, reaching around 151.80 during the early Asian session on Wednesday. This decline occurs as the US Dollar weakens against the Japanese Yen due to escalating trade tensions between the US and China and a general risk-off environment.
US and China have implemented additional port fees on shipping firms, which include sectors from holiday toys to crude oil. Additionally, US President Trump threatens to impose 100% tariffs on China, depending on their stance in the rare earths dispute.
Fed Signals Interest Rate Cut
Fed Chair Powell announced that the central bank is poised for a quarter-point interest-rate reduction later this month, despite concerns about a government shutdown and tepid hiring. Meanwhile, expectations for an October rate cut remain unchanged with almost a 100% probability.
Political instability in Japan, especially with the Komeito party leaving the ruling coalition, could impact the Bank of Japan’s ability to hike rates. The BoJ’s ultra-loose monetary policy from 2013 to 2024 led to the Yen depreciating but its recent policy adjustments are lending some support.
The Japanese Yen is often considered a safe-haven, attracting attention during turbulent times due to its perceived stability and reliability, potentially increasing its value against riskier currencies.
US Dollar Weakness and Risk-Off Environment
The environment appears set for a weaker US dollar against the yen, as the Federal Reserve is signaling an interest rate cut for later this month. We see this as a direct response to a slowing US economy, with the latest jobs report for September 2025 showing a gain of only 95,000 jobs, well below forecasts. Historically, when the Fed has initiated a cutting cycle, like the one in mid-2019, the dollar has typically entered a period of weakness.
On the other side, the Bank of Japan seems stuck, even after we saw them begin normalizing policy back in 2024. Political infighting within the ruling coalition is making it difficult for the BoJ to consider further rate hikes, especially with the economy remaining fragile. Japan’s recent core inflation data, which came in at 1.9%, gives policymakers an excuse to wait and see rather than risk tightening into a global slowdown.
The biggest factor right now is the risk-off mood driven by the escalating US-China trade tensions. The yen is acting as a classic safe-haven currency, attracting flows as traders move away from risk. We saw similar behavior during the 2018-2019 trade dispute, when the CBOE Volatility Index, or VIX, frequently spiked above 25, signaling high market stress and a flight to safety.
Considering these dynamics, we believe long positions in yen derivatives, such as buying JPY call options or USD/JPY put options, are warranted. These strategies would benefit from a drop in the USD/JPY exchange rate, which seems likely given the Fed’s dovish stance and the ongoing trade conflicts. The heightened uncertainty also suggests volatility itself could be a profitable trade, perhaps through options straddles.
However, we must remain extremely cautious around the 152.00 level for USD/JPY. Looking back at late 2022 and 2023, this was the line in the sand where the Japanese Ministry of Finance intervened directly in markets to strengthen the yen. Any trades betting on further yen weakness could be abruptly wiped out if they decide to step in again.
