Where to sell USD/JPY

The political premium evaporation trade

The Bank of Japan offered up a hawkish appetizer, but the main course remains political. The dissent of Takata and Tamura, both openly calling for a hike, was a flashing signal: the BoJ boardroom is no longer singing entirely from Ueda’s hymn sheet. Rarely in modern memory have two hawkish votes landed on the same day, and coupled with a cautious step toward selling ETFs and J-REITs, the outlines of an exit are taking shape. Yet the yen barely flinched. That is because markets heard Ueda himself pour water on the sparks, repeating familiar lines about uncertainties, tariffs, and “due attention.” The governor is waiting, and he is waiting for politics.

And politics, in Japan, will soon be center stage. On October 4 the LDP decides its next leader, and the race has narrowed to a two-horse duel between Shinjiro Koizumi and Sanae Takaichi. Every trader knows the outcome shapes the BoJ’s October 30 meeting as much as any inflation print. Koizumi has momentum: a Jiji poll put him narrowly ahead at 23.8% against Takaichi’s 21%, while Kyodo reversed the order but showed the gap tight. More importantly, among party members, Koizumi polls stronger when the sample is confined to LDP loyalists. Add the crucial endorsement from former PM Suga, who carries sway with the Ishin party, and you have the makings of a coalition that promises stability and reform. Betting markets see it too: Polymarket assigns roughly a 70% probability to Koizumi’s victory. Markets don’t just listen to polls; they price odds, and those odds say the yen is one election away from regaining its spine.

Takaichi, meanwhile, campaigns on the dreamscape of fiscal giveaways and refundable credits, echoing the Abenomics playbook that once tried to inflate Japan out of stagnation. That message may resonate at the grassroots, but it rattles the bond market and unnerves senior lawmakers wary of fiscal strain. And here’s the crucial wrinkle in the voting math: round one gives equal weight to grassroots and lawmaker votes, but round two tilts heavily toward lawmakers, with 86% of the power resting in their hands. If Koizumi makes it into the runoff, his edge among the Diet members almost guarantees him the prize. That is why the market trades him not as a long shot, but as the likely outcome.

Layer on the Fed, cutting rates and compressing spreads, and the setup sharpens. Japanese institutional hedge costs have suddenly found themselves free to recycle dollars. That is when USD/JPY stops drifting and starts lurching. The move isn’t just about Ueda’s rhetoric; it’s about political legitimacy for a BoJ turn, combined with U.S. short-term rates doing half the work for them.

So the trading question isn’t “if” you should sell USD/JPY — it’s “where.” The tape doesn’t reward hesitation; it rewards knowing the weak beams from the load-bearing pillars. Right now, every tick higher feels less like steel framing and more like scaffolding — temporary supports waiting to be pulled down.

With Koizumi’s odds climbing and the Fed easing into a softer stance, the natural bias is to fade strength. The level to etch in red ink is 145. That’s the line every desk will have circled. A Koizumi win could slice through it in a single gap — not a grind, but a void — as political risk premium evaporates and short-end spreads collapse.

If Takaichi pulls the upset, yes, the pair might lurch higher in a sugar-rush spike. But that would be the kind of move that burns hot and fades quickly, because the global backdrop is leaning against the dollar’s staying power. Structurally, the story doesn’t support a lasting rally — just a pop before the weight of fundamentals presses it back down.

This week is not about parsing Ueda’s adjectives or mapping a basis-point here or there. It is about recognizing that Japan’s currency is hostage to its leadership ballot. The market has already started to price the outcome—odds, polls, and spreads all pointing in the same direction. Traders should not be caught flat-footed. I think” at the money works”, but to add, if we move into the 148.50–149.50 zone, and treat 145 as the inflection where politics and policy finally collide. When the curtain rises on October 4, the yen could find its script again.

As you know, I’ve always preferred trading event risk over playing crystal-ball games about where currencies will sit in a year’s time. That long-range stuff is a mug’s game — the probability cones get too wide, the conviction too thin. I’d rather work the tighter bands, where the odds and the payoff line up clean.

The one hesitation about loading up short USD/JPY right here is timing. We’ve got NFP on October 3, and my probability work — backed by the computational models I trust — has September’s number landing closer to +70,000. That’s higher than the whisper and well above where a lot of the market is leaning after last month’s weak print.

But the conclusion doesn’t change much: you fade it ahead of the release. Because even if the data surprises, the setup argues for pressure into the Monday, October 6, gap opening lower. In other words, you don’t wait for the perfect print — you position into the probability and let the event carry the trade.