USD/JPY traded at 155.70 as markets anticipated the December BoJ rate hike. The market has priced an 81% probability of a rate hike, with attention focused on future BoJ guidance and fiscal strategies.
The USD/JPY’s daily momentum remains mildly bearish, with RSI slipping. Risks are positioned towards the downside with key support at 155.40. Further support levels are at 154.40 and 151.60, while resistance levels are at 156.70, 157.90, and 158.87.
Key Questions on BoJ Decision
With the Bank of Japan’s December rate decision approaching, the key question is not whether they will hike, but what they signal for the future. Markets have already priced in an 81% chance of a hike, so the real move in USD/JPY will be driven by their forward guidance. This sets up a classic volatility event, making options strategies more appealing than spot trades in the coming weeks.
A hawkish BoJ, signaling more tightening is on the way, could cause the yen to strengthen significantly. We’ve seen Japan’s core inflation hold above 2.5% for two consecutive quarters, supported by the record wage growth agreed during the spring “shunto” negotiations earlier this year. Traders who believe this data will force the BoJ’s hand should consider buying USD/JPY put options, targeting a move towards the 154.40 support level.
On the other hand, if this is a “one and done” hike followed by cautious language, the yen could weaken sharply as priced-in expectations unwind. This would be similar to the JPY weakness we saw after the BoJ ended its negative interest rate policy back in March 2025, when the lack of follow-through disappointed bulls. In this case, call options with strike prices above the 156.70 resistance would be a logical way to position for a rally.
Considering Strategies for Volatility
Given the uncertainty, strategies that profit from a large move in either direction are worth considering. A long straddle, which involves buying both a call and a put option, would allow traders to capitalize on the post-announcement volatility without needing to predict its direction. This is especially relevant as the US Federal Reserve has signaled a pause, which could contribute to a softer dollar environment next year and add another layer of complexity.
