USD/JPY started the week firmer, extending its rebound from Friday’s post-BoJ dip below 157.00 and reaching around 157.85 in Asian trading. Japan’s finance ministry reiterated that the joint FX understanding with the US remains in place and that authorities stand ready to counter excessive or disorderly yen weakness, but the currency saw limited support as markets weighed uncertainty over the next BoJ rate rise. A wide interest-rate differential between Japan and other major economies continued to weigh on the low-yielding JPY, offering the pair a tailwind.
The dollar faced some pressure from hopes of Middle East diplomacy, with Iranian negotiators holding a third day of talks with Qatari mediators and Tehran floating a 48-hour plan to reopen the Strait of Hormuz, subject to US conditions. Geopolitical risk nonetheless stayed elevated, reinforced by the prospect of further military action after the 3 November midterm elections, preparations for renewed confrontation, and fresh Ukrainian strikes on Russian oil refineries. US data pointed to resilient growth and sticky inflation, while higher crude prices fed price-pressure concerns; the CME Group FedWatch Tool showed markets pricing about a 75% chance of a Fed rate increase in December. Technically, the pair tested the 23.6% Fibonacci retracement at 157.80 and held above the 100-period SMA at 157.75, with resistance at 158.34 and support levels at 157.80, 157.47 (38.2%) and 157.21 (50.0%).
Derivative Trading Strategies and Risk Management
As we navigate the opening days of November 2026, derivative traders should align their strategies with the ongoing bullish momentum in the USD/JPY pair. With the US Federal Reserve expected to raise borrowing costs in December—where futures markets currently reflect a 75% probability of a rate hike—the widening yield differential continues to favor buying dollar-denominated contracts on dips. We suggest looking at long positions or call options while spot prices hold firmly above the 100-period Simple Moving Average near 157.75.
However, we must remain cautious regarding verbal warnings from Tokyo, as Japanese authorities have historically stepped into the market near these elevated levels. Historical data shows that Japan spent nearly 9.8 trillion yen ($62 billion) in 2024 to curb currency weakness when the exchange rate approached similar multi-decade lows. To manage this downside tail risk, derivative traders should consider using bull call spreads rather than unhedged long positions, capping maximum risk while still aiming for targets above the 158.34 resistance level.
Geopolitical Risks and Protective Measures
Geopolitical headlines in the Middle East and strikes on Russian energy infrastructure continue to keep crude prices elevated, reinforcing US inflation fears and supporting higher yields. Furthermore, with the US midterm elections taking place this week on November 3, sharp market swings across financial instruments are highly likely in the coming days. We advise placing protective put options or establishing disciplined stop-loss orders below key technical retracement floors at 157.47 and 157.21 to absorb sudden market shifts.
