Insights 
VT 
The Japanese Yen (JPY) increased 0.3% against the US Dollar (USD), maintaining its standing among G10 currencies and building on Friday’s bullish reversal. This follows an 8-month low, as yield spreads narrow due largely to dovish Fed expectations, while the Bank of Japan’s outlook remains stable.
Sentiment strongly influences JPY’s performance, particularly its strength in the JPY/risk reversal relationship, and weakness in JPY/spread correlations. The recent LDP vote in Japan did not alter Bank of Japan expectations, providing extra support to the Yen.
European And American Currency Movements
EUR/USD held gains above the 1.1600 mark, supported by US Dollar weakness amid trade tensions. GBP/USD climbed above 1.3400 but then lost some steam, with future movement likely influenced by Federal Reserve and Bank of England commentaries.
Gold remained steady around $4,200 per troy ounce, buoyed by geopolitical tensions and US-China trade worries. Bitcoin’s recovery faced resistance due to ongoing US-China trade issues and a US government shutdown, with prices below $112,500.
Lido DAO stabilized above $1.00 following the Lido V3 testnet launch, aimed at upgrading key contracts. Global economic growth forecasts by the IMF saw a slight upward revision, despite overarching uncertainty.
We are seeing a notable shift in the Yen, which has bounced impressively from its multi-month lows against the dollar. This strength is directly tied to a softer outlook for the Federal Reserve, especially after last week’s US core inflation data for September came in at 2.8%, continuing its downward trend from earlier in the year. This repricing of the Fed’s path is the main story driving the currency markets right now.
Yield Spread Dynamics
The key fundamental support comes from narrowing yield spreads between US Treasuries and Japanese Government Bonds. The US 10-year yield has recently fallen back to 3.95% from its August 2025 highs, while the Bank of Japan holds firm on its ultra-loose policy, signaling no imminent changes. This dynamic reduces the incentive for the carry trades that heavily favored the dollar throughout 2024.
For the coming weeks, we believe traders should consider buying USD/JPY put options to position for further downside. The recent break below the 150 level, a key psychological support over the past year, suggests momentum could carry the pair lower toward the 147-148 range. Options expiring in November or December 2025 would capture this expected short-term move.
Beyond fundamentals, market sentiment is now a dominant force, with the Yen regaining its traditional safe-haven appeal. The CBOE VIX index has climbed to 22, reflecting the ‘acute’ uncertainty highlighted in the IMF’s latest World Economic Outlook. This risk-off environment provides a powerful tailwind for the Yen, independent of interest rate differentials.
