Insights 
VT 
The USD/JPY pair has strengthened above 154.00, with the US Dollar gaining against the Japanese Yen. This movement follows a hawkish stance from the Federal Reserve, pushing the pair to around 154.20 in early Asian trading. Traders have scaled back expectations for future Federal Reserve rate cuts.
The US Federal Reserve recently reduced interest rates by 25 basis points and suggested it may be the final cut of the year. Current market sentiment shows a sharp decline in the likelihood of another 25 bps cut in December, dropping from nearly 94% to about 70%, according to the CME FedWatch tool.
Us Government Shutdown Risks
Meanwhile, the ongoing US government shutdown, now in its sixth week, introduces risks to the Dollar’s robustness. Stalled congressional negotiations signal potential economic strain, with this being set to become the longest shutdown in US history.
Market watchers in Japan remain cautious regarding the Bank of Japan’s next rate hike. Governor Kazuo Ueda indicated a potential hike as soon as December, but the market awaits more concrete signs. Japan’s new Prime Minister, Sanae Takaichi, supports aggressive fiscal spending, dampening immediate expectations for policy tightening.
The Japanese Yen is influenced by the Bank of Japan’s policies, bond yield differentials, and risk sentiment, often strengthening during economic stress as a safe-haven currency.
Given the Fed’s hawkish signal after its rate cut last week in October 2025, we see the US dollar strengthening. The market is now pricing in a lower chance of a December rate cut, a view supported by last Friday’s strong October Non-Farm Payrolls report, which showed a surprising gain of 210,000 jobs. This fundamental strength suggests continued upward pressure on USD/JPY.
Economic Uncertainty And Risk
However, the ongoing US government shutdown, now the longest in our history, is a significant risk that could reverse the dollar’s gains without warning. Consumer confidence data for October saw its sharpest drop since the 2020 pandemic, and Fitch Ratings has placed the US’s ‘AA+’ credit on a negative watch. This uncertainty makes holding long dollar positions risky, as any sudden political resolution could trigger a sharp sell-off.
On the other side of the pair, we are entering a zone where Japanese authorities have previously intervened. We saw them step into the market multiple times back in 2024 when the rate crossed the 155 level, making intervention a real possibility as we hover above 154. While the Bank of Japan talks about a potential rate hike, the market remains skeptical due to the new Prime Minister’s preference for fiscal stimulus.
With such strong opposing forces, implied volatility is elevated, making this a prime environment for options traders. Buying long-dated call options on USD/JPY allows for participation in further upside while capping risk at the premium paid. This strategy protects against a sudden reversal caused by an end to the shutdown or surprise Bank of Japan action.
Alternatively, for those seeking a more cost-effective approach, a bullish call spread could capture modest gains if the pair continues to grind higher. This could be paired with buying cheap, out-of-the-money put options as a hedge against a sharp decline. This combination balances a bullish view with protection from the high event risk on the horizon.
