The yen strengthened after Japanese trade data showed a trade deficit of 234.6 billion yen in September, slightly lower than the 242.8 billion yen in August but still well below market expectations for a surplus of 22 billion yen.

Exports grew by 4.2% year-on-year, the first increase since April, but slightly lower than the expected 4.6%; imports grew by 3.3%, a three-month high, exceeding the market expectation of a 0.6% increase. These data indicate that Japan's economic activity has rebounded, supporting the appreciation of the yen.

Political factors also provided support for the yen. The inauguration of Sanae Takaichi, Japan's first female prime minister, who pledged to strengthen the economy and defense capabilities and improve relations with the United States, boosted market confidence in the yen in the short term.

Institutional view: According to a market survey, 64/67 economists expect Japan's policy interest rate to remain at 0.75% until March 2026, of which about 60% expect a 25 basis point rate hike this quarter.

The dollar was under pressure from the US government shutdown and policy uncertainty. The US government shutdown entered its fourth week, with the Senate repeatedly failing to pass funding bills and economic data releases being hampered, increasing investor uncertainty about Federal Reserve policy and the outlook for the dollar.

Fed fund futures show that the market is almost fully pricing in a 25 basis point rate cut in October, and the probability of another 25 basis point cut in December is as high as 98%.

Expert Opinion: St. Louis Fed President Musalem stated that if employment risks rise and inflation remains manageable, he supports further rate cuts and stressed the need for a balanced approach. Fed Chair Powell also noted that slow job growth could further weaken the economy due to the impact of the government shutdown on economic data.

USD/JPY daily chart shows that despite the short-term decline to about 151.70, it still remains within the upward channel. The initial resistance level above is 153.27, the 8-month high, and further resistance is at 156.90, the upper edge of the channel. The support level below is 151.20, the 9-day EMA.

A break below this level could lead to a test of the lower channel at 150.00 and the 50-day EMA at 149.16. A further break below this level could trigger a bearish pattern, potentially leading to a drop to the monthly low at 146.59. The MACD is weak in the short term, while the RSI has retreated to neutral levels, suggesting weak short-term volatility. However, the medium-term upward channel remains intact.

Editor's opinion:

The yen strengthened in the short term due to improved Japanese trade data and positive political news, while the US dollar came under pressure due to the government shutdown and policy uncertainty, causing USD/JPY to decline. Overall, the exchange rate remains in an upward trend, maintaining its medium-term bullish trend. However, a break below the key support level of 151.20 in the short term could trigger further correction.