USD/JPY is stabilizing below the previous day’s peak of 152.17. Japan’s leaders are stressing the independence of the Bank of Japan. Prime Minister Takaichi announced new economic measures designed to exceed last year’s supplementary budget of ¥13.9 trillion. These measures aim to help households cope with inflation. Long-term JGB yields remain steady, and there are expectations that the BOJ will soon begin normalizing rates or adopting a more aggressive approach.

Economic Support and Growth

Economic support is expected to rise. The Tankan survey indicates that real GDP is growing, and inflation is moving towards the BOJ’s 2% target. The Japan swaps market suggests a 10% chance of a 25 bps rate hike to 0.75% at the October 30 meeting, with nearly a 40% chance by December. A full 25 bps increase is anticipated by Q1 2026. The FXStreet Insights Team gathers market observations from experts, including notes from commercial entities and analysts. The market is not fully ready for a Bank of Japan rate hike next week. With swap markets pricing in only a 10% chance for the October 30 meeting, this indicates a clear mismatch with expectations of a more aggressive approach. This may provide a chance for those expecting a stronger yen.

Options Strategy and Market Reactions

Consider buying USD/JPY put options that expire after the BOJ meeting. Last week’s Tokyo Core CPI for October came in at 2.9%, higher than expected, giving the central bank more reasons to counter inflation. A surprise rate hike could lead to a sharp drop in the currency pair, making these options potentially very profitable. We recall the significant market movement in late 2024 when the BOJ unexpectedly changed its yield curve control policy, resulting in a quick strengthening of the yen. The current environment feels similar, as the government has implicitly supported the BOJ acting independently. This history suggests any aggressive move could have a significant impact. Implied volatility seems low, making options that benefit from large price swings appealing. The Cboe’s USD/JPY volatility index is currently around 7.5%, close to its lowest levels this year. Buying straddles or strangles could be a smart approach to trade this event without committing to a specific direction. For those with long USD/JPY positions, hedging is crucial as we approach the 152.17 level. This area previously triggered sharp warnings from the Ministry of Finance in 2024. Purchasing protective puts can help safeguard portfolios from a sudden policy shift that might erase recent gains. Create your live VT Markets account and start trading now.

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