Trade Recommendation: HALF RISK SHORT USDJPY at CMP 146.85, HALF RISK AT 148.85, TP 140 & SL 152.15

We have been of the view for past several months that BOJ is running behind it’s rate hike cycle. After yesterday’s Tankan survey and recent commentary by BOJ speakers in the past week, we are reasonably certain now that BOJ will hike in the 30th Oct meeting.

The only risk to our view is if in the 4th Oct LDP leadership elections, Sanae Takaichi wins over Shinjiro Koizumi. On the other hand, a victory for Koizumi could potentially catalyse more JPY strength, given that he is perceived as more supportive of Bank of Japan (BoJ) policy normalisation than Takaichi, and that the market does not seem to be actively positioning long JPY.

Summary: Recent Japanese economic indicators have showed that local economy is performing well in spite of US tariff effects on Japanese exports but inflation is running consistently ahead of it’s 2% target. Hence the much delayed 25 bps rate hike from BOJ can be expected in it’s 30th Oct meeting. Recent political issues have delayed the rate hike but assuming Takaichi does not win, we see a very strong probability of 25 bps rate hike by the BOJ in the October meeting.  

Hence, we are bullish JPY and expect to see the test of 140 levels by end Dec’25. Technically the 139.70 level is the 38.2% retracement level of the entire move from 105 to 161 in the last 5 years. It was tested twice in Sep’24 & Apr’25 but this time it might surely break below it due to far lower UST-JGB differentials. 

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