Insights 
VT 
The Japanese Yen has seen some recovery, trading around 150 to the US dollar. This movement is not due to the expected return to Abenomics with Takaichi as the new LDP leader since the LDP and Komeito coalition has fallen apart. The uncertainty of the next Japanese prime minister’s election and coalition formation contributes to this situation.
Political Dynamics In Japan
Although Takaichi might not become prime minister, discussions continue between the LDP and smaller parties. The approach of three opposition parties considering a coalition is a potential first in Japanese politics. The lack of experience of these parties in governance over the last 13 years suggests any resulting government may be unstable.
It is anticipated that bold reforms are unlikely, with any policy changes focusing on relieving private households and controlling inflation. Small measures, like suspending gasoline taxes, are expected. Further JPY devaluation may worsen conditions, so a steadier exchange rate is likely amidst Japan’s political instability.
We see the current political turmoil in Japan as a signal for a more stable yen in the near term. The dissolution of the LDP coalition means that whoever becomes prime minister after the October 21st parliamentary session will likely lead a fragile government, preventing any drastic economic reforms. This suggests the recent recovery to around the 150 level against the dollar could mark the beginning of a more contained trading range.
For derivatives traders, this points towards strategies that benefit from decreasing volatility. We’ve already seen implied volatility on one-month yen options fall from over 12% in early October 2025, when a Takaichi-led government seemed certain, to around 8.5% today. This trend suggests selling options premium, such as through short straddles or strangles, could be a favorable approach in the coming weeks.
Trading Strategies In A Stabilizing Market
We anticipate the USD/JPY pair will be confined to a relatively tight band, likely between the 148 support and 152 resistance levels we observed through much of September 2025. An options structure like an iron condor, which profits from the currency pair staying within a defined range, could be well-suited for this environment. This allows traders to collect premium while the political situation prevents a major breakout.
This situation is reminiscent of the “revolving door” prime minister era Japan experienced before 2012, where political indecision often prevented significant currency policy shifts. Furthermore, with the latest inflation report for September 2025 still showing a stubborn 2.8%, any new government will be under immense pressure to avoid a weaker yen that would drive up import costs. This reinforces our view that authorities will favor stability over stimulus.
