Japan Awaits Change

USD/JPY

Key zone: 149.50 - 150.50

Buy: 151.00 (after correction to 150) ; target 152.50; StopLoss 150.30

Sell: 149.50 (on strong negative fundamentals) ; target 148.00; StopLoss 150.20

Markets reacted to Japan’s political reshuffle with a large-scale sell-off of the yen. Sanae Takaichi, a 64-year-old representative of the ultra-conservative wing of the Liberal Democratic Party (LDP), won the leadership race and, by tradition, will become Japan’s first female Prime Minister.

A strong yen remains one of the biggest challenges for Japan’s economy. Amid soaring national debt and growing servicing costs — with 10-year government bond yields nearing 1.7% against a benchmark rate of 0.5% — Takaichi continues the course of her mentor, Shinzo Abe, supporting a soft monetary policy and a weaker currency.

The new Prime Minister emphasized the need for close coordination between the Bank of Japan and the government, stating that the cabinet should define both fiscal and monetary strategy. Her policy agenda includes support for small and medium-sized enterprises to encourage wage growth through subsidies and a possible cut in the consumption tax.

Such an approach reduces the likelihood of monetary tightening by the Bank of Japan in the near term. Against this backdrop, the Nikkei 225 hit a fresh all-time high, while the yen came under heavy pressure. The yield on 40-year Japanese government bonds jumped 15.2 basis points to 3.538%, signaling a broad-based sell-off of long-term debt.

However, Takaichi’s stance is unlikely to please the U.S. President. Donald Trump plans to visit Tokyo on October 27, and unless Japan’s new leader shows readiness to compromise, trade relations could once again escalate — possibly including new tariff hikes.

The speculative rally in USD/JPY has strengthened the U.S. dollar against most major currencies. The yen’s weakening appeal is driving investors toward higher-yielding assets. For instance, the interest rate differential between Japan and higher-rate economies such as Australia creates favorable conditions for continued growth in AUD/JPY.

Speculative capital in yen-related trades remains extremely high. In the coming days, the key market focus will be the upcoming U.S. NFP report, which traditionally fuels volatility in yen pairs. Regardless of the data, the NFP release could trigger the much-needed technical correction.

So we act wisely and avoid unnecessary risks.

Profits to y’all!