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Meanwhile Expectations For Yen Appreciation
The ongoing US government shutdown has reached its 20th day, and this political stalemate might limit USD/JPY gains. Spot prices have risen, with technical indicators suggesting a possible further appreciation towards the 151.75 mark, with key resistance levels in focus. However, immediate support stands at the 150.50-150.45 region, with a breach possibly opening the way to recent lows. The Yen’s value is tied to Japan’s economic performance and BoJ policy, with the Yen seen as a safe-haven asset in turbulent times.
The BoJ’s monetary policy has been ultra-loose from 2013 to 2024, resulting in Yen depreciation. Recently, the BoJ’s policy adjustments, alongside other central banks’ rate cuts, have supported the Yen. Over the past decade, the BoJ’s policy divergence with other banks, particularly the US Federal Reserve, widened bond yield differentials, benefiting the USD. The BoJ’s 2024 decision to shift from ultra-loose policies, combined with rate cuts elsewhere, is narrowing this gap. The Yen’s safe-haven status attracts investors during market stress, boosting its value against riskier currencies.
Bank Of Japan’s Position
With the new LDP-JIP coalition in Japan signaling big spending under Prime Minister Takaichi, we see significant downside pressure on the Yen. However, this political push for a loose monetary policy is directly at odds with the Bank of Japan’s stated goals. This clash between political ambition and central bank independence is creating a very uncertain environment for the currency in the coming weeks.
The Bank of Japan’s position is supported by strong economic data, which gives them cover to continue tightening policy. We’ve seen Japan’s core inflation stay above the 2% target for over three years, with the September 2025 figures coming in at a firm 2.8%. Given that the economy also expanded for a fifth straight quarter through June 2025, the BoJ has every reason to proceed with another rate hike soon, which would strengthen the Yen.
On the other side of the pair, the US Dollar is looking weak. As of this morning, the CME FedWatch Tool is pricing in an almost certain 25-basis-point rate cut by the Federal Reserve later this month, with another expected in December. The ongoing US government shutdown, now dragging into its fourth week, is also weighing on the dollar, just as we saw during the prolonged shutdown back in late 2018.
This deep uncertainty between Japan’s political direction and its central bank’s path, combined with clear US Dollar weakness, suggests that volatility is the main trade. A simple bet on the direction of USD/JPY is risky when such powerful forces are pulling it in opposite directions. For derivative traders, this environment makes strategies that profit from price movement itself, regardless of direction, particularly attractive.
One effective approach would be to buy volatility using a long straddle, which involves buying both a call and a put option with the same strike price and expiration date. This strategy would pay off if the USD/JPY pair makes a sharp move either above the 152.00 resistance or breaks below the key 150.00 support level. The cost of the strategy is the premium paid, which is the maximum potential loss if the pair remains stagnant.
