USD/JPY has dropped recently due to changes in the Bank of Japan’s (BOJ) position. This follows a meeting between Takaichi and Ueda last week. Currently, the currency pair sits at 156.30, according to analysts Frances Cheung and Christopher Wong from OCBC.

Hawkish Turn of BOJ

The BOJ has taken a more aggressive tone, suggesting possible interest rate hikes. Ueda mentioned in parliament that the BOJ will discuss the timing and feasibility of these hikes in future meetings. Factors like rising wages, increasing services inflation, and positive economic activity support this new approach. Analysts now estimate a greater than 50% chance of a rate hike in December, up from just 16% the previous week. Technical indicators suggest that the slight upward momentum is fading, with the RSI decreasing. There could be a corrective pullback, with support levels seen at 155.05, 154.40, and 151.60. Resistance is at 157.90 and 158.87, marking previous highs. This analysis comes from the FXStreet Insights Team, which includes insights from commercial notes and expert analysts. USD/JPY has eased from its highs and is currently trading around 156.30 as the BOJ adopts a tougher stance. This shift appears to have started after last week’s meeting among key officials. The market now sees a better than 50% chance of a BOJ rate hike in December, a big increase from 16% just a week ago. Strong domestic data supports this shift. Recent reports show that nominal cash earnings in Japan rose 2.5% year-over-year, the fastest growth in years, while the latest Tokyo Core CPI reached 2.8%. These figures give the BOJ a reason to start normalizing its policy after a long pause.

Impact on the US Dollar

On the flip side, the US dollar faces challenges. The latest US PCE inflation data for October 2025 came in at a lower-than-expected 2.9%, raising speculation that the Federal Reserve may be finished with its tightening cycle. This difference in policy, with the BOJ becoming more hawkish while the Fed remains neutral, adds downward pressure on the currency pair. Given the potential for a pullback, derivative traders should consider strategies that profit from a falling USD/JPY. Buying put options can effectively capture downward movement while limiting risk to the premium paid. This strategy aligns with the declining bullish momentum visible in the daily charts. The expected policy change is likely to increase price fluctuations, making volatility a tradable opportunity. Implied volatility for USD/JPY options is rising as the December BOJ meeting approaches. Traders might consider long volatility strategies, such as straddles, to take advantage of significant price movements in either direction, which are typical during major policy shifts. It’s important to monitor key technical levels for risk management. The support at the 21-day moving average of 155.05 is the first major test for the pair’s decline. A break below this level could lead to further drops towards 154.40 and possibly even 151.60, levels not seen since the sharp rise earlier in 2025. Create your live VT Markets account and start trading now.

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