The USD/JPY pair seeks to rise above the weekly high of 152.17, but faces challenges in extending its upward trend. Japan’s forthcoming fiscal stimulus, likely surpassing 13.9 trillion yen, could support households amid continued inflation.

The pair struggles to maintain a four-day winning streak, despite expectations that Prime Minister Sanae Takaichi will adopt economic policies similar to former PM Shinzo Abe. A poll indicates that 60% of economists expect the Bank of Japan to increase rates by 25 bps this quarter.

The US Dollar’s Robustness

The US Dollar remains robust amid easing trade tensions with China, with the US Dollar Index reaching highs near 99.10. Attention shifts to the US CPI data for September, anticipated to considerably influence perceptions of the Federal Reserve’s monetary policy trajectory.

The Japanese Yen’s value hinges on several factors, including the Bank of Japan’s monetary policy, the gap between Japanese and US bond yields, and risk sentiment among traders. The BoJ’s recent policy shift aims to narrow the bond yield differential with the US, influencing the Yen’s performance.

The Yen is viewed as a safe-haven asset, meaning it often appreciates during periods of market uncertainty, as investors favour its perceived stability.

Current Market Conditions and Strategies

We see the USD/JPY pair stalling near the 152.17 level, which has proven to be a significant point of resistance in the past. The immediate focus for us is the upcoming US Consumer Price Index (CPI) data, which will heavily influence the Federal Reserve’s next move. This creates a tense standoff against the backdrop of a potentially more aggressive Bank of Japan.

The delayed US inflation data for September is the main event this week, and we should be prepared for volatility. We recall that core CPI in August 2025 came in at a stubborn 0.3% month-over-month, so any figure at or above that will likely reinforce bets on the Fed holding rates higher for longer. A softer inflation print, however, could trigger a sharp sell-off in the pair.

On the other side of the trade, we cannot ignore the Bank of Japan, where a majority of economists now expect a rate hike this quarter. This is a significant policy shift, marking a clear departure from the ultra-loose policies we saw end back in 2024. A confirmed move by the BoJ would start to narrow the interest rate gap with the US, putting fundamental upward pressure on the yen.

Given the binary nature of the upcoming CPI release, we should look at options to manage risk and capitalize on the expected jump in volatility. Implied volatility on short-dated USD/JPY options has already climbed to its highest level in over a month, reflecting the market’s current uncertainty. Traders anticipating a large move, regardless of direction, might consider long straddles or strangles centered around the current 152.00 level.

For those with a stronger directional conviction, buying out-of-the-money call options offers a way to position for a surprisingly high inflation number with limited downside risk. Conversely, put options would be the instrument to play a potential yen rally if US inflation cools or the BoJ signals a hike is imminent. This strategy allows us to define our maximum potential loss from the outset.

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