Insights 
VT 
The USD/JPY has decreased by 0.6% to near 152.00 during the European trading session on Tuesday. This drop is attributed to the Japanese Yen (JPY) strengthening due to improved US-Japan trade relations.
The JPY was the strongest against the British Pound today. Japan’s cabinet plans to invest $550 billion in the US, targeting sectors like power and automotives, with Toyota committing up to $10 billion in US auto plants.
Strong Bilateral Relations
US President Donald Trump praised the new Japanese Prime Minister Sanae Takaichi, expressing strong bilateral relations. Domestically, the Bank of Japan is expected to keep interest rates steady at 0.5% on Thursday.
Conversely, the US Dollar trades lower with expectations of a Federal Reserve interest rate cut on Wednesday. The US Dollar Index, which measures the USD against six major currencies, is down 0.15% to around 98.60.
The USD, the official currency of the United States, accounts for over 88% of global foreign exchange turnover. Its value is largely influenced by the Federal Reserve’s monetary policy and actions like quantitative easing, which often result in a weaker Dollar.
With USD/JPY falling sharply towards 152.00, we see this trend continuing due to a clear policy split between the Federal Reserve and the Bank of Japan. The improving trade relationship, marked by Japan’s $550 billion investment pledge, provides a strong fundamental reason for Yen strength. This political goodwill appears to be accelerating the pair’s decline.
Federal Reserve Rate Cut
On the US side, expectations for a Federal Reserve rate cut this Wednesday are extremely firm, weighing heavily on the dollar. Recent data supports this, with the September 2025 core PCE price index, the Fed’s preferred inflation gauge, cooling to 2.6% year-over-year. The CME FedWatch Tool reflects this sentiment, pricing in a 91% probability of a 25-basis-point cut this week.
Conversely, the Bank of Japan is facing a different economic reality, making its expected hold on rates a source of Yen strength. Japan’s national core CPI has remained above the BoJ’s 2% target for 19 consecutive months, last reported at 2.8% for September 2025. This persistent inflation gives the BoJ little reason to ease policy, creating a stark contrast with the Fed.
For derivative traders, this environment suggests positioning for further downside in USD/JPY. Buying put options could be a strategic move, offering a way to profit from a continued fall while capping risk ahead of the central bank meetings. Implied volatility for one-week USD/JPY options has already climbed to 10.2%, indicating the market is bracing for significant price swings.
We remember how Japanese authorities intervened heavily to support the Yen when USD/JPY was near these same levels back in late 2022. This time, however, the Yen is strengthening on its own fundamental merits rather than official action. Traders should watch the 151.50 level, a key zone during that 2022 period, as the next major psychological support.
