USD/JPY experienced a rebound in the Asian morning, recovering from Friday’s decline after Powell’s remarks at Jackson Hole. Currently, the currency pair has approached 147.50, despite the lack of new developments.
Bank of Japan Governor Ueda emphasised the need for more women and foreign workers to address Japan’s labour challenges due to an ageing population. The move on Friday is perceived as a ‘gap’, suggesting potential for retracement, though there is caution against overemphasising it.
Trump’s Tariff Advocacy
In other market news, Trump is advocating for a 15-20% minimum tariff on EU goods, causing the EURUSD to dip. Powell’s shift indicates rising job market risks, with the Fed likely to cut rates thrice in 2025 according to Pantheon.
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USDJPY Market Hesitation
The bounce in USD/JPY to near 147.50, despite dovish signals from the Fed, shows the market is hesitant. We should remember that similar levels back in late 2023 prompted strong verbal warnings from Japanese officials, making this a dangerous zone to chase the dollar higher. Any move towards 150 will likely trigger a much stronger response from Tokyo.
Fed Chairman Powell’s pivot to focusing on job market risks is a major development. With the market now pricing in three interest rate cuts in 2025, the dollar’s strength looks fragile. This view is supported by recent data showing US core inflation has cooled to 2.8% and July 2025’s Non-Farm Payrolls report added a weaker-than-expected 150,000 jobs, giving the Fed a clear runway to ease policy.
On the other side, the Bank of Japan remains quiet on policy changes, keeping the yen weak. We know from experience that Japan’s core inflation, which briefly hit multi-decade highs above 2.5% in mid-2024, has struggled to stay there, giving Governor Ueda little ammunition to start hiking rates. This policy divergence is the primary force keeping USD/JPY elevated.
Global risks are increasing volatility, with talk of new US tariffs and the final delisting of Evergrande creating uncertainty. This isn’t a time for a calm, one-way bet. We’ve seen the VIX, a measure of stock market volatility, creep up from a low of 13 to around 17 over the past month, signaling that traders are becoming more nervous about sudden market shocks.
Given this backdrop, buying USD/JPY put options for October or November 2025 provides a defined-risk way to position for a dollar decline. This allows a trader to profit if the Fed’s rate cuts begin to weigh on the dollar, while limiting the potential loss to the premium paid. This is a sensible approach with intervention risk capping the upside.
For those who believe a big move is coming but are unsure of the direction, a long straddle options strategy is appropriate. By buying both a call and a put option with the same strike price and expiry, a trader profits from a significant price swing in either direction. This is essentially a pure play on the rising volatility we expect in the coming weeks.
