The Japanese Yen (JPY) appreciated by 0.5% against the US Dollar (USD), causing the USD\/JPY to reach the critical 155 level, following the Q4 Tankan business survey results. Technical indicators suggest a bearish trend, with the RSI dropping below 50.<\/p>\n
Focus has now shifted to the Bank of Japan\u2019s policy decision, where a 25bps rate increase to 0.75% is expected along with possible adjustments in growth and inflation forecasts. The adjustment in USD\/JPY was prominent, highlighting the psychologically important 155 level, and attention has moved to the 50-day moving average at 154.15.<\/p>\n
Japan plans to release preliminary PMI data for December, although the main focus remains on the anticipated BoJ policy decision later in the week. Media suggest a strong chance of revisions in forecasts for growth and inflation, alongside a more hawkish policy outlook. Additionally, there could be alterations to the range of movement for the long end of the Japanese Government Bond curve.<\/p>\n
The JPY is gaining strength, pushing the USD\/JPY pair down to the important 155 level. This move comes after the Tankan business survey met expectations, suggesting traders were positioned for a weaker result. All eyes are now on the Bank of Japan’s policy decision expected later this week.<\/p>\n
We see traders positioning for a further drop by buying USD\/JPY put options. With the 50-day moving average at 154.15 as the next target, puts with strikes around 154.00 or 153.50 that expire in late December or January are becoming popular. This strategy allows for profit if the Bank of Japan delivers the hawkish policy the market is anticipating.<\/p>\n
This sentiment is supported by Japan’s stubborn inflation, as we saw the national core CPI for November 2025 hold at 2.9%, well above the central bank’s target. In contrast, recent US inflation data has been moderating, with the latest core PCE figures at 2.5%. This growing policy divergence between a hawkish BoJ and a neutral Fed strengthens the case for a stronger yen.<\/p>\n
Implied volatility on yen options is climbing ahead of the meeting, reflecting the market’s memory of past surprises. We recall the sharp JPY rally back in December 2022 when the BoJ unexpectedly tweaked its yield curve control policy, catching many off guard. Traders are therefore pricing in a significant move and are hesitant to be short the yen this time around.<\/p>\n
Given the high expectations for a 0.25% rate hike to 0.75%, the main risk is a “dovish” hold or a less aggressive statement from the central bank. Such a scenario would likely cause a sharp reversal, sending USD\/JPY back above 156 and wiping out the value of recently purchased puts. This makes setting up risk-defined strategies, like put spreads, a prudent alternative for some.<\/p>\n
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