Insights 
VT 
USD/JPY is stabilising below the previous day’s intra-day peak of 152.17. Japan’s leadership emphasised the Bank of Japan’s autonomy.
Prime Minister Takaichi has announced new economic measures, expected to surpass last year’s ¥13.9 trillion supplementary budget to aid households against inflation. Long-term JGB yields are steady, and there are expectations for the BOJ to start normalising rates or adopt a hawkish stance soon.
Economic Support and Growth
Economic support is anticipated to increase. The Tankan survey indicates growth in real GDP, and inflation is moving towards the BOJ’s 2% aim.
Japan’s swaps market suggests a 10% chance of a 25bps rate hike to 0.75% at the October 30 meeting, with nearly 40% probability by December. A complete 25bps rate rise is anticipated by Q1 2026.
The FXStreet Insights Team curates market observations from experts, featuring notes by commercial entities alongside insights from analysts.
The market is not fully prepared for a Bank of Japan rate hike next week. With swap markets pricing only a 10% chance for the October 30th meeting, there is a clear mismatch with expectations for a hawkish surprise. This suggests current derivative pricing may offer an opportunity for those anticipating a stronger yen.
Options Strategy and Market Reactions
We should consider buying USD/JPY put options with expirations after the upcoming BOJ meeting. Last week’s Tokyo Core CPI for October came in at 2.9%, hotter than expected, giving the central bank more reason to act against inflation. A surprise hike could cause a sharp drop in the currency pair, making these options highly profitable.
We remember the significant market reaction in late 2024 when the BOJ unexpectedly adjusted its yield curve control policy, causing the yen to strengthen rapidly. The current situation feels similar, as the government has given its tacit approval for the BOJ to act independently. This precedent suggests any hawkish move will be impactful.
Implied volatility appears cheap, making options that benefit from a large price swing attractive. The Cboe’s USD/JPY volatility index is currently hovering around 7.5%, near its lowest levels of the year. Buying straddles or strangles could be a smart way to trade the event without betting on a specific direction.
For those holding long USD/JPY positions, hedging is now critical as we approach the 152.17 level. This same area triggered sharp verbal warnings from the Ministry of Finance back in 2024. Purchasing protective puts can shield portfolios from a sudden policy shift that could erase recent gains.
