USD/JPY trades near 153.00, continuing its seven-day rise despite a weaker US Dollar. The Yen, the worst-performing G10 currency this month, is pressured by Japan’s fiscal and policy outlook.

Traders are focused on the Bank of Japan (BoJ) and Federal Reserve (Fed) decisions this week. The BoJ is likely to maintain its benchmark rate at 0.50%, while the Fed is expected to announce another rate cut.

BoJ Rate Hike Probability

There is about an 11% chance of a BoJ rate hike this week, though a quarter-point increase is anticipated by early 2026. The central bank is weighing economic conditions and the potential impact of Japan’s proposed fiscal stimulus.

The Fed’s meeting is set to commence on Tuesday, with almost certain expectations of a rate cut. This would follow a September reduction, the first since December 2024, aimed at supporting the economy amidst labour market risks.

The US government shutdown has delayed critical employment data release, affecting labour market insights. However, recent Consumer Price Index data fuelled expectations for continued Fed rate cuts.

Volatility in USD/JPY may increase as both central banks meet. The pair is likely to remain uptrend influenced by Fed rate cuts and the BoJ’s cautious stance amid fiscal growth.

Interest Rate Dynamics

Our focus is on the clear policy split between the Federal Reserve and the Bank of Japan. With the Fed expected to cut rates this week and the BoJ on hold, the interest rate difference continues to favor the US Dollar. This environment supports strategies that benefit from a higher USD/JPY, such as buying call options.

The US economic data justifies the Fed’s cautious easing path, which began with the cut back in September 2025. We’ve seen Core PCE inflation, the Fed’s preferred gauge, moderate to 2.6% in the latest reading, down from over 3% early in the year but still above target. This slow decline gives the Fed room to make “risk-management” cuts without signaling a full-blown recession, keeping the dollar relatively strong.

On the other side, the Yen’s weakness is rooted in Japan’s domestic struggles. We’ve now seen over two years of negative real wage growth, with the latest data from the Ministry of Labour showing a 1.2% year-over-year decline after adjusting for inflation. This prevents the Bank of Japan from raising rates aggressively, even as they consider Prime Minister Takaichi’s fiscal plans.

This week’s central bank meetings have pushed expected volatility higher, making options more expensive. This suggests traders could consider selling JPY put options to collect premium, betting that the pair will not fall significantly. Alternatively, buying long-dated call options allows one to participate in the upward trend while capping potential losses.

However, we must remain alert to the risk of intervention from Japanese authorities as USD/JPY approaches the 153.00 level. We saw significant intervention to support the yen back in the fall of 2022 and again in the spring of 2024 when the currency weakened past similar thresholds. This makes outright long positions risky, favoring defined-risk option strategies like call spreads to guard against a sudden, sharp reversal.

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