Fundamental Market Analysis for October 6, 2025 USDJPYThe yen weakened sharply in response to political news in Japan: the outcome of the leadership race in the ruling party boosted expectations of expanded fiscal stimulus. The market interprets this as a factor of easier domestic financial conditions and a more prolonged period of low rates. Long-dated Japanese government bonds are under pressure, further reducing the yen’s appeal as a funding currency.
The yield differential between the U.S. and Japan remains substantial, and the probability of a Fed rate cut already in October does not fully offset this gap. At the same time, the Bank of Japan remains cautious about the pace of normalisation, watching wage dynamics and services inflation. So far, signals from the regulator do not point to readiness for a series of rate hikes, which keeps the upward bias in USDJPY.
In the short term the pair is sensitive to Japanese authorities’ comments on FX volatility; however, against the current backdrop the fundamental vector remains upward. A move toward 150.950 is our base case; risks include verbal intervention and an abrupt drop in U.S. yields on weak data.
Trading recommendation: BUY 149.950, SL 149.250, TP 150.950
