Insights 
VT 
The Japanese Yen has weakened, falling 0.2% against the US Dollar, and is underperforming most G10 currencies amid subdued trading. This defensive trading trend follows Prime Minister Takaichi’s recent policy directions, which aim to address high inflation by targeting gasoline taxes and reducing the tax burden on earned income.
Recent inflation data met expectations, with both core and headline figures near 3% year-on-year, a level rarely seen in decades. The USD/JPY pair remains neutral in the 149.50 to 153 range, but recent recovery hints at a possible upward movement, with potential resistance expected around the mid-156 to mid-158 mark.
Observations And Analysis
The FXStreet Insights Team includes selected observations from notable experts, supplemented with analysis from various internal and external analysts.
We are seeing the continuation of a trend that began back when Prime Minister Takaichi’s fiscal plans first took shape, which has kept the Yen on a defensive footing. The defensive trading in the Yen has pushed the USD/JPY cross significantly higher over the past year, now trading around 162.50. This sustained weakness comes even as core inflation has remained stubbornly elevated.
Recent data confirms this pressure, with September’s core CPI for 2025 printing at 2.9%, a level that continues to challenge the Bank of Japan’s policy stance. Despite this, the BoJ has only offered subtle hints of future policy normalization, keeping interest rate differentials massively in the dollar’s favor. This policy divergence remains the primary driver of Yen underperformance.
For derivative traders, this environment suggests buying call options on USD/JPY to participate in further upside potential towards the 165 level. This strategy offers a defined-risk way to stay with the prevailing trend of Yen weakness. The limited pushback from officials suggests the path of least resistance remains higher for now.
Strategies For Traders
However, we must also account for the increasing risk of sudden government intervention, similar to what we saw back in the fall of 2022. To hedge against a sharp, unexpected drop, traders should consider purchasing out-of-the-money put options on USD/JPY. This acts as a relatively cheap insurance policy against a surprise move by the Ministry of Finance to defend the currency.
Given the tension between the weak-yen trend and the growing intervention risk, implied volatility is likely to increase ahead of the next BoJ meeting. A long straddle could be an effective strategy to profit from a significant price move in either direction. This position would benefit from either a decisive breakout to new highs or a sharp reversal caused by official action.
