Insights 
VT 
The Japanese Yen (JPY) is under pressure against the US Dollar (USD), with USD/JPY trading at approximately 152.80, marking the sixth consecutive day of gains. A rebound in the US Dollar occurred following a temporary decline caused by softer US Consumer Price Index (CPI) data; strong US business activity data facilitated this recovery.
US Economic Activity
The S&P Global Flash Composite Purchasing Managers Index (PMI) for October increased to 54.8 from 53.9 in September, showing the fastest private-sector expansion in three months. The Services PMI rose to 55.2 from 54.2, while the Manufacturing PMI increased to 52.2 from 52, indicating a broad-based sectoral strength.
Consumer data revealed a weaker sentiment, with the University of Michigan survey reporting a decline in the headline index to 53.6 in October from 55.1 in September. Inflation expectations were mixed, maintaining a 1-year outlook at 4.6% and a 5-year measure edging up to 3.9% from 3.7%.
US CPI data showed a 0.3% month-on-month increase in September, missing the 0.4% forecast. This soft inflation data led to expectations that the Federal Reserve would continue a gradual easing path, anticipating a rate cut at the monetary policy meeting on 29-30 October.
In Japan, the Yen’s weakness continued despite domestic inflation rising to 2.9% in September from 2.7% in August. Speculation grows around Prime Minister Sanae Takaichi announcing a stimulus package next month, with Finance Minister Katayama hinting at possible additional government bonds issuance if necessary.
The JPY showed mixed performance against major currencies. The heat map outlined the percentage changes, with the base currency picked from the left column and the quote currency from the top row. The Japanese Yen recorded the strongest performance against the Canadian Dollar.
Outlook and Strategy
The divergence between US economic strength and Japanese policy is becoming clearer, suggesting continued upside for USD/JPY. Even with an expected Federal Reserve rate cut next week, the robust US PMI reading of 54.8 signals that the American economy remains resilient. This underlying strength is likely to keep the US dollar supported against a fundamentally weak Japanese yen.
Given this outlook, we believe buying USD/JPY call options is a prudent strategy for the coming weeks. This approach allows participation in further gains toward multi-decade highs while strictly defining risk to the premium paid. We are looking at strike prices above the 153.00 level, anticipating a break of the recent range.
We must remain aware of intervention risk from Japanese authorities, especially as we are now trading at levels not seen since the major interventions of 2022 and 2024. However, with Japan’s government actively planning a new stimulus package that will likely require more debt, their justification for aggressively defending the yen is weaker this time. This internal policy conflict in Japan gives us more confidence that the uptrend can persist.
The market has largely priced in the Fed’s gradual easing, which began after the aggressive hiking cycle that saw rates peak above 5% back in 2024. The softer-than-expected US inflation data, at 3.0%, simply confirms the Fed has room to continue its planned cuts without creating alarm. The focus has now shifted from inflation to relative economic strength, where the US currently has the upper hand.
On the Japanese side, rising domestic inflation of 2.9% would normally be a catalyst for a stronger yen. But the government’s plan for more fiscal spending completely undermines any potential monetary tightening from the Bank of Japan. This dynamic reinforces the yen’s position as a funding currency, and we expect this trend to continue through the end of the year.
