Insights 
VT 
The Japanese Yen is weaker, falling by 0.2% against the US Dollar and underperforming all G10 currencies amid renewed risk appetite. The Bank of Japan’s recent hawkish comments suggest policy tightening, but markets appear doubtful, with only 4 basis points expected for October and 15 for December.
This uncertainty is compounded by political instability resulting from the LDP’s coalition collapse. Opposition parties are gaining ground ahead of the vote on 21 October, causing the USD/JPY to trade defensively and approach new local lows. Analysts anticipate a break of 150 and a shift towards 148.50, the 50-day moving average.
Market Sentiment Shifts
Elsewhere, the Dow Jones Industrial Average has declined by 330 points, mainly due to shifting sentiment. Gold is approaching $4,300 as fears of trade wars and potential Federal Reserve cuts increase demand. Meanwhile, the USD is weak, causing losses in the USD/JPY for a third successive day, and the USD/CHF dips due to escalating trade tensions.
A list of future best brokers includes insights and ratings, guiding traders based on spreads, regulations, leverage, and more. This data serves as a reference but does not guarantee accuracy or offer personalised trading advice.
The Japanese yen is weak, but this is happening while the US dollar is also losing ground, creating a tricky situation for us. The massive interest rate gap between the US and Japan, with the Federal Reserve’s target rate sitting over 5% higher than the Bank of Japan’s policy rate, still makes borrowing yen to buy dollars the default trade. However, the current broad dollar softness is overriding this, pushing the USD/JPY pair lower for now.
The Bank of Japan is making hawkish statements, but the market simply doesn’t believe a significant policy change is coming soon. We remember the historic but small rate hike back in 2024, which barely slowed the yen’s decline, and derivatives markets are only pricing in a tiny 15 basis point hike by December. Even with Japanese core inflation holding above the central bank’s 2% target for over two years now, the consensus is that the BoJ will remain extremely cautious.
Political Influence on Currency
Political turmoil in Japan is adding to the pressure, especially after the ruling LDP’s coalition fell apart last week. We need to watch the parliamentary vote scheduled for October 21 very closely as this will drive volatility. Given the current downward momentum, we should consider buying short-dated put options on USD/JPY with strike prices around 150, targeting a move toward the 50-day moving average near 148.50 in the coming weeks.
This weakness in the USD/JPY is occurring amid a broader risk-on mood, where investors are more willing to sell safe-haven currencies. This appetite for risk is what’s hurting the yen against almost every other major currency. Therefore, while a short position on USD/JPY looks promising due to dollar-specific softness, we should be cautious about expecting the yen to strengthen significantly against other currencies.
