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VT 
Economic Trends in Japan
Japan’s Capital Spending saw a 2.9% growth in the last quarter, albeit slower than before, with a Composite PMI of 52.0 indicating modest growth. The yen strengthens further with Prime Minister Sanae Takaichi’s fiscal policy assurances and USD selling pressure. Bears eye the 155.40-155.35 region as a potential support level on the USD/JPY 4-hour chart, while recovery could see resistance at the 156.00 mark.
The Japanese Yen is strengthening significantly as we start December 2025, driven by the Bank of Japan’s clear signals of an upcoming interest rate hike. This is happening at the same time the US Dollar is weakening on expectations that the Federal Reserve will cut its own rates again this month. This growing divergence between the two central banks’ policies is the key trend we should be trading on in the coming weeks.
Our conviction in a weaker dollar is supported by recent data showing that US Core PCE inflation for October 2025 dipped to 2.8%, falling below market forecasts. This, combined with a softer-than-expected November jobs report, gives the Federal Reserve more reason to continue its easing cycle. We see this continued pressure on the dollar as a primary factor that will push the USD/JPY pair lower.
Strategic Moves in Forex Market
On the other side of the trade, the Bank of Japan is preparing for a historic policy shift, moving away from the negative interest rate policy that has defined it for years. Watching the two-year Japanese government bond yield climb above 1% for the first time since 2008 confirms that the market is finally pricing in this tightening. We have not seen a serious tightening cycle from the BoJ since the 2006-2007 period, and this change is giving the yen a powerful tailwind.
Given this outlook, we are actively looking at buying put options on the USD/JPY pair, targeting strike prices below the 155.00 support level. Choosing an expiration date in late January 2026 would effectively cover the window for the next potential Bank of Japan rate decision. This strategy allows for significant upside if the pair continues to fall, while clearly defining our maximum risk.
We also note the current risk-off sentiment in the broader market, with the S&P 500 retreating by over 2% last week after hitting highs in November 2025. This nervousness in global equities enhances the Yen’s appeal as a traditional safe-haven asset. It provides another layer of support for our view that the path of least resistance for the Yen is upwards.
