Insights 
VT 
The Japanese Yen continues to weaken against the US Dollar, marking a six-day losing streak. The USD/JPY pair stabilises around 153.00 after a volatile session that saw it briefly dip to 152.11 before recovering. Political uncertainties in Japan and Europe bolster the US Dollar’s appeal, with the US Dollar Index nearing a two-month high at 99.50, gaining approximately 1.8% this week.
Japanese Political Landscape
Japan’s political landscape influences currency trends as Sanae Takaichi, poised to become Prime Minister, discusses governmental and Bank of Japan (BoJ) coordination. Takaichi affirms the BoJ’s role in monetary policy, stating that decisions should align with government goals. Despite not seeking a significantly weaker Yen, she indicates no immediate BoJ rate hike or alteration in accords, advocating for demand-led inflation with current pressures coming from costs.
In the US, a prolonged government shutdown persists, clouding economic forecasts. With the shutdown in its ninth day, economic activity risks increasing as data releases are delayed. The labour market shows cooling trends, and an extended shutdown could worsen employment and business sentiment, supporting expectations that the Federal Reserve (Fed) may cut rates further to support growth.
With the Bank of Japan’s new leadership signaling a delay in rate hikes, the interest rate gap between the US and Japan is set to remain wide. We see the path of least resistance for USD/JPY as higher, especially as Japan’s core inflation, which just printed at 2.5% for September 2025, is still viewed as the wrong kind of inflation. This policy divergence strongly supports a bullish outlook on the currency pair.
For those anticipating further yen weakness, buying USD/JPY call options with strike prices around 154.00 and 155.00 offers a way to profit from upward moves in the coming weeks. This strategy limits downside risk to the premium paid, which is crucial given the political uncertainties at play. It’s a defined-risk way to stay long while the trend continues.
Potential Risks and Strategies
However, we must be cautious as the pair approaches levels that triggered intervention in the past. We remember the sharp, sudden drops in late 2022 when authorities stepped in, and with the pair now above 153.00, verbal warnings from officials could escalate. Therefore, traders should consider using stop-losses on any long positions or using options to cap potential losses.
On the other side of the trade, the US government shutdown introduces significant risk for the dollar. The latest non-farm payrolls data from early October 2025 showed a weak gain of only 95,000 jobs, reinforcing the view that the Federal Reserve may need to cut rates sooner than expected. An extended shutdown would likely worsen economic data and accelerate this dovish Fed pivot.
Given these conflicting drivers, volatility is expected to increase. Traders who believe a large price swing is imminent but are unsure of the direction could buy straddles, which involve purchasing both a call and a put option at the same strike price. This position profits from a significant move either up or down, capitalizing on the current market tension.
