Insights 
VT 
The upcoming week is pivotal for Japan and the JPY. PM Takaichi is set to meet President Trump for the first time, while the BoJ policy meeting on October 30 may reveal potential changes to interest rates. Currently, market implied policy rates suggest a 20 bps rate hike over three months, reflecting scepticism over any forthcoming 25-bps increase by year-end.
In the current month, the JPY has depreciated by over 3% against the USD, which is at the top among G10 currencies in October. There is potential for the JPY to regain some strength against the USD, assuming the BoJ can raise rates by year-end. This expectation assumes BoJ Governor Ueda will reinforce the central bank’s hawkish stance in the policy meeting.
Japanese Real Rates Remain Unusually Low
Japanese real rates remain unusually low. Governor Ueda may hint at the BoJ’s cautious approach to policy normalisation during his press conference. Selling the USD/JPY rallies before the BoJ meeting could be a strategy, given the resistance near the recent high of USD/JPY 153.27. The FXStreet Insights Team provides these market observations, selected from renowned experts, supplemented by internal and external analyst insights.
The upcoming meeting between Prime Minister Takaichi and President Trump, combined with the Bank of Japan’s policy announcement on October 30, makes this a critical week for the yen. These events will likely introduce significant volatility, creating opportunities for traders. We are positioned for a potential shift in the yen’s recent downtrend.
Currently, market pricing implies little confidence in a BoJ rate hike by year-end, which has pushed the yen down over 3% against the dollar in October. The yen is the worst-performing major currency this month, reflecting a broad consensus that policy will remain loose. This widespread bearishness, however, may be overdone.
We believe Governor Ueda will use this week’s press conference to signal a more hawkish stance, opening the door for a rate hike by early next year. This view is based on the fact that Japan’s core inflation has now remained above the BoJ’s 2% target for over two years. This contrasts sharply with the policy path set after the BoJ ended negative interest rates back in March 2024, which many now see as only the first step.
Interest Rate Difference Between Japan and the United States
The significant interest rate difference between Japan and the United States, where the Fed funds rate is over 5%, remains the primary driver of yen weakness. A hawkish signal from the BoJ would be the first step in narrowing that gap, potentially causing a sharp reversal in the USD/JPY pair. We therefore see the pair moving towards 147 over the next three months.
For derivative traders, this outlook suggests buying JPY call options or USD put options to position for a stronger yen. A defined-risk strategy, such as a USD/JPY bear put spread, could be an effective way to capitalize on a potential downturn following the BoJ meeting. This allows traders to benefit from a drop in the pair while capping potential losses.
We would look to enter these positions by selling into any rallies in USD/JPY, particularly as it approaches the recent high near 153.27. This level represents significant resistance and recalls the highs from late 2023 and 2024 that triggered official warnings about currency intervention. This makes it an attractive area to initiate bearish positions.
