USD/JPY Price Forecast - Dollar to Yen Climbs to ¥152.28 as Japan’s Political Shakeup

USD/JPY Price Forecast - Dollar to Yen Climbs to ¥152.28 as Japan’s Political Shakeup

The USD/JPY pair rebounds as Tokyo’s coalition collapse and Trump’s tariff pause push traders toward the dollar | That's TradingNEWS

TradingNEWS Archive 10/13/2025 5:45:47 PM
Forex USD/JPY USD JPY

USD/JPY Holds Near 152.30 as Political Shock in Tokyo and Tariff Whiplash Drive Global Currency Turmoil

The USD/JPY pair opened the week in firm control of the bulls, trading around ¥152.28, up nearly 0.75% from Friday’s close of ¥151.13. The move extends the dollar’s momentum as investors digest a storm of geopolitical and domestic catalysts—ranging from Japan’s collapsing coalition government to Trump’s surprise 100% tariff threat on China. The pair briefly tested the 152.35 resistance zone, a key inflection area that capped the last three rallies, before stalling amid signs of overextension. Behind the scenes, the Relative Strength Index (RSI) remains above 50 on the four-hour frame, signaling fading—but not yet broken—bullish momentum.

Tokyo Political Crisis Deepens, Keeping the Yen on Defensive Ground

Japan’s new Liberal Democratic Party (LDP) leader, Sanae Takaichi, has entered her premiership bid under heavy strain after the Komeito Party withdrew from the ruling coalition on Friday, ending a 26-year partnership that guaranteed legislative stability. This sudden rupture leaves the LDP 37 seats short of a majority in the Lower House and exposes Takaichi’s “Sanaenomics” agenda—her proposed mix of fiscal stimulus and continued loose monetary policy—to uncertainty. Should she fail to secure new parliamentary allies by October 14, Japan risks either a fragile minority government or early elections. Such outcomes traditionally weigh on the JPY, but paradoxically may boost safe-haven inflows as investors hedge against instability.

Market participants are split on direction: if Takaichi secures control and reinforces fiscal expansion, the yen could weaken further toward ¥153.20–¥154.80; failure could spark volatility as confidence in Japanese governance erodes. Analysts in Tokyo note that investor positioning remains skewed toward USD/JPY longs, implying that political missteps could trigger a disorderly unwind toward ¥150.30, where technical buyers await.

Trump’s Tariff Pivot Fuels Risk-On Reaction and Dollar Bid

The other major force behind USD/JPY’s rally is the evolving U.S.–China trade narrative. President Donald Trump’s declaration of 100% tariffs on Chinese goods, effective November 1, initially triggered panic on Friday, but markets quickly reassessed over the weekend as officials hinted at flexibility. The pattern, now dubbed by traders as the “TACO trade” (Trump Always Chickens Out), has led to a swift rebound in equities and a stronger dollar as risk appetite recovers. Beijing’s restrained response—accusing Washington of hypocrisy without direct retaliation—suggests a tactical pause before next month’s APEC summit, where Trump and Xi Jinping are expected to meet.

That backdrop favors the dollar over the yen. Historically, tariff headlines that appear harsh but are later diluted boost USD/JPY by 0.6–0.9% within the following sessions. The current setup fits that profile perfectly: traders are pricing in another move toward ¥153.20, especially as safe-haven flows recede from the yen.

Federal Reserve in Data Limbo Amid Government Shutdown

The U.S. government shutdown, now stretching into multiple weeks, has deprived markets of crucial data such as CPI and payrolls, leaving the Federal Reserve flying blind. Rate futures imply nearly 60% odds of two 25-basis-point cuts by year-end, but the lack of official releases clouds that outlook. Fed Chair Jerome Powell and Governors Waller and Miran are set to speak this week, their comments likely to spark volatility in USD/JPY given that both Powell and Miran remain frontrunners for the Fed chair role in 2026.

Absent data, the Fed narrative is being driven by market expectations rather than evidence, and that’s keeping the U.S. Dollar Index (DXY) elevated near 99.8, with yields stable around 4.32% on the 10-year Treasury. As long as the Fed remains noncommittal, the path of least resistance for USD/JPY stays upward.

Japan’s Yield Curve and Bank of Japan Dynamics Reinforce Dollar Strength

The short-term driver within Japan’s borders remains yield compression. Despite rhetoric about eventual tightening, Japanese two-year yields have slipped below 0.10%, erasing months of progress since the BOJ’s July normalization hints. With inflation moderating and political turbulence mounting, traders now price only a 41% probability of a BOJ rate hike by December, down sharply from 68% pre-election.

As Japanese yields retreat, the interest rate differential with the U.S.—still near 425 basis points—continues to attract carry trades into USD/JPY. That structural imbalance keeps dips shallow: each pullback toward ¥151.00–¥150.30 is being bought aggressively by algorithmic funds and macro desks chasing yield. Technically, the 50-day moving average sits at ¥150.70, providing dynamic support, while the 200-day around ¥148.20 defines the outer edge of the bull trend.

Market Sentiment: Buy Dips, Watch for Policy Noise

Across the past fortnight, correlation models reveal a shift: USD/JPY is now more sensitive to Japanese yield changes than U.S. ones. That inversion highlights the market’s focus on Tokyo rather than Washington. Even so, intraday traders continue to favor buying dips. The pair’s bounce from Friday’s ¥151.10 low underscores strong demand beneath ¥151.00, and the sustained close above ¥152.00 signals momentum continuity. RSI remains in bullish territory, while MACD continues to print higher without showing divergence.

Levels to monitor: immediate resistance at ¥152.35, the intraday pivot at ¥152.00, and deeper support at ¥150.30. A confirmed breakout above ¥152.35 clears the path to ¥153.28, with ¥154.80 as a stretch target. On the downside, only a decisive close below ¥150.00 would invalidate the medium-term uptrend.

Volatility Outlook: Policy Risk Meets Thin Liquidity

Holiday-impacted trading and a shutdown-thinned U.S. calendar amplify sensitivity to headlines. Options markets price one-week implied volatility near 10.4%, up from 8.2% last week, suggesting traders anticipate sharp swings around the October 14–15 window when Japan’s leadership outcome becomes clear. Cross-market signals confirm rising hedging activity: the USD/JPY risk reversal skew has flipped slightly bullish, meaning call demand exceeds put protection, a rare condition that tends to appear ahead of major breakouts.

Outlook and Verdict

The interplay between Tokyo’s political vacuum, Trump’s trade theatrics, and the Fed’s data blackout leaves USD/JPY in a delicate but bullish posture. Every factor—rate differentials, macro momentum, and technical alignment—leans toward continued dollar strength. However, political instability in Japan and lingering global risk could still spark intraday reversals if confidence falters.

With price holding above ¥152.00, the base case remains Buy on Dips, targeting ¥153.20 initially and ¥154.80 if U.S. yields stay firm. Any close below ¥150.30 would flip the bias short-term neutral. The structure favors bulls, and unless the BOJ surprises with hawkish action or Washington’s shutdown worsens materially, the market continues to reward those long the dollar against the yen.

Current Price: ¥152.28 | Resistance: ¥153.20 / ¥154.80 | Support: ¥151.00 / ¥150.30 | Bias: Bullish (Buy on Dips)

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