Insights 
VT 
Nomura’s Global Markets Research team suggests that Fed Chair Jerome Powell’s recent dovish remarks may lead to a weaker dollar against the yen. These comments increase the likelihood of a September rate cut, suggesting that the USD might stay under pressure in the short term.
The team reaffirms its stance on a short USD/JPY trade, maintaining a target of 142.00 by the end of October. Attention will also be on upcoming statements from Bank of Japan officials, such as policy board member Junko Nakagawa, for indications on potential rate hikes, which could further strengthen the yen.
Market Reaction To Fed Chair Comments
Following last Friday’s dovish comments from the Fed chair, we have higher conviction in our short USD/JPY position. The market is now pricing in a greater than 70% probability of a rate cut in September, according to CME Group data, which reinforces our view that the dollar will remain under pressure. This shift in policy expectations provides a clear catalyst for a lower exchange rate.
Our target for the pair remains 142.00 by the end of October. This level represents a significant retracement from the highs seen in late 2023 and 2024, but it is a realistic objective given the shifting central bank policies. We see this as a return towards a more fundamentally balanced valuation as interest rate differentials narrow.
For derivative traders, buying USD/JPY put options with expirations in October or November is a direct way to position for this move. This strategy offers a defined-risk way to capture potential downside toward the 142 target. Implied volatility has also eased slightly after the Fed’s announcement, making option premiums more attractive than they were earlier this month.
Focus Shifting To Bank Of Japan
Attention is now shifting to the Bank of Japan, with a key speech from a policy board member scheduled for this Thursday. With Japan’s core inflation holding steadily above 2.5% through mid-2025, any signal of a rate hike before year-end would significantly accelerate yen strength. This provides a second powerful catalyst for the trade.
Traders looking for a lower-cost approach could consider a bear put spread, such as buying a 145-strike put and selling a 142-strike put. This would reduce the initial premium paid for the position. While this strategy caps the maximum potential profit at our 142 target, it offers a more capital-efficient way to express the view.
