The USD/JPY exchange rate has surged past the 151.00 mark, reaching an eight-month high near 153.00, with potential to test 155.00 soon. This rise is attributed to the yen’s weakness amid expectations of continued economic stimulus under incoming Prime Minister Sanae Takaichi, as well as weak wage data justifying caution from the Bank of Japan (BOJ).

Japan’s August cash earnings report revealed softer data, with nominal cash earnings falling to 1.5% year-on-year, below the expected 2.7% and following a downward revision of July’s figures. Scheduled pay growth for full-time workers remained stable at 2.4% year-on-year, while Japan’s annual total factor productivity growth stood at around 0.7%.

Anticipated Boj Decisions

Despite scepticism in the markets, it is likely the BOJ will implement a rate hike at its October 30 meeting, given improved economic growth and inflation indicators. The swaps market, however, indicates less than a 30% chance of a 25 basis point rate hike. Japan’s Tankan business survey signals ongoing recovery in GDP growth and progress towards the BOJ’s 2% inflation target.

The clear momentum in USD/JPY toward 155 suggests that short-term call options are a straightforward play for the coming days. With the pair decisively breaking through the 151 and 153 levels, the path of least resistance appears to be upward. This trend is fueled by expectations of continued stimulus under the incoming prime minister.

While the recent August wage data was weak at 1.5%, we must not forget the larger context of Japan’s economy. The strong wage deals agreed back in the spring of 2025, the highest in over three decades, are still filtering through the system. This, combined with underlying inflation that continues to track above the Bank of Japan’s 2% target, provides a strong argument for policy normalization.

The market is currently pricing in very low odds, less than 30%, of a rate hike at the October 30 meeting. This presents a significant opportunity for traders positioned for a surprise, as Japan’s own Tankan business survey points to an ongoing economic recovery. With core inflation holding firm, as seen in September’s 2.8% reading, the Bank of Japan has a solid case for acting sooner than investors expect.

Strategic Market Positioning

We remember officials stepping in to defend the yen back in 2022 when the pair crossed the 150-151 level, showing their discomfort with rapid currency depreciation. As we approach the 155 mark, the risk of verbal or physical intervention rises, making put options an increasingly attractive hedge or speculative position. Implied volatility will likely increase as we near the central bank meeting, so establishing these positions early could be cost-effective.

Meanwhile, the US dollar remains strong, fueled by Federal Reserve expectations as core inflation persists above 3%. The ongoing US government shutdown adds to safe-haven demand for the dollar, creating a powerful force that continues to press against the yen. This dynamic keeps the upward pressure on USD/JPY, creating a tense tug-of-war ahead of the BOJ’s decision.

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