USD/JPY is currently at 155.70 as traders expect a rate increase from the Bank of Japan (BoJ) in December. The market sees an 81% chance of this happening, with a focus on what the BoJ will indicate for future policies. The daily trend for USD/JPY shows a slight bearish momentum, with the RSI declining. The threat of further drops is present, with important support at 155.40. Additional support levels are 154.40 and 151.60, while resistance can be found at 156.70, 157.90, and 158.87.

Key Questions on BoJ Decision

As the BoJ’s December rate decision nears, the main question is not just whether they will hike rates, but what future guidance they will provide. With an 81% chance of a rate hike already factored in, the real movement in USD/JPY will depend on their outlook. This creates a chance for volatility, making options trading more attractive than regular spot trades in the upcoming weeks. If the BoJ adopts a hawkish stance and hints at further tightening, the yen could strengthen significantly. Japan’s core inflation has remained above 2.5% for two quarters, supported by record wage increases from the spring “shunto” negotiations. Traders who think this data might push the BoJ to act should consider buying USD/JPY put options, targeting a drop to the 154.40 support level. Conversely, if the BoJ signals that this hike is a “one-off” followed by cautious language, the yen could weaken as market expectations adjust. This scenario mirrors what happened after the BoJ ended its negative interest rate policy in March 2025, when the lack of follow-up disappointed bulls. In this case, buying call options with strike prices above the 156.70 resistance could be a smart move for those anticipating a rally.

Considering Strategies for Volatility

With the uncertainty ahead, strategies that benefit from large price swings in either direction are advisable. A long straddle—buying both a call and a put option—allows traders to profit from volatility after the announcement without needing to guess the direction. This is particularly relevant since the US Federal Reserve has indicated a pause, which might lead to a softer dollar next year and add further complexity. Create your live VT Markets account and start trading now.

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