USD/JPY has remained stable as the market waits for updates from the Bank of Japan (BoJ). Most market players expect an interest rate increase in December, with the currency pair currently at 155.06. Governor Ueda mentioned that the BoJ can only estimate the neutral rate broadly and cannot pinpoint the terminal rate. Although the policy remains accommodative, a new economic package is likely to benefit the real economy.

Market Expectations

Right now, there is an 80% chance of a rate hike in December. For the yen to recover significantly, the BoJ will need to provide clear guidance, along with fiscal responsibility and a softer USD and interest rates in the US. Daily momentum is slightly bearish, with the RSI showing a decline. Risks seem to lean towards the downside, with important support levels at 154.40 and 151.60. Resistance is found at 156.70, 157.90, and 158.87. As of December 4th, 2025, the market nearly fully anticipates a rate hike from the BoJ this month, with an 80% probability. Thus, the announcement shouldn’t cause a significant shock to USD/JPY. The crucial question is what the BoJ plans for 2026, as this will influence the yen’s direction into the new year. Japan’s Core CPI for October was 2.9%, marking the 19th month above the BoJ’s target, which supports the case for a hike. However, we recall the March 2024 hike when the yen weakened afterward due to insufficient forward guidance. Therefore, betting on a stronger yen post-hike could be risky, as a “one and done” message might push USD/JPY higher.

Derivative Trading Opportunities

For derivative traders, the uncertainty surrounding the BoJ’s future offers a chance to capitalize on volatility. Instead of directly betting on direction, consider strategies like straddles or strangles on USD/JPY options expiring in late December or January. This way, we can benefit from significant price movements once Governor Ueda provides more clarity for 2026. The US side of the equation is also essential for the yen’s recovery. The latest JOLTS report showed job openings are at their lowest in three years, supporting market expectations that the Federal Reserve will cut rates this month. A weaker US dollar would greatly support a lower USD/JPY but wouldn’t be enough without a strong response from the BoJ. Technically, the pair is near 155.00, with downside risks toward key support at 154.40 and then 151.60. We can structure options plays around these levels, perhaps selling cash-secured puts below 152.00 to collect premium while preparing for a yen recovery. On the upside, key resistance is found at 156.70 and the 2025 high of 158.87. Create your live VT Markets account and start trading now.

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