The USD/JPY pair climbed significantly, approaching 155.50, as the US Dollar showed strong performance after the October and November Nonfarm Payrolls report was released. The US Dollar Index is currently up by 0.4%, trading around 98.60. ### US Dollar Performance Despite weak employment data, the US Dollar has risen without changing market expectations for the Federal Reserve’s monetary policy. Analysts believe the distorted labor market data is due to the US government shutdown, which caused the unemployment rate to increase to 4.6% in November. Now, all eyes are on the US Consumer Price Index (CPI) data for November, which is expected on Thursday. Both the headline and core CPI are likely to grow by 3% annually. In the meantime, the Japanese Yen is behaving cautiously ahead of the Bank of Japan’s monetary policy announcement on Friday, where a 25 basis point interest rate hike to 0.75% is expected. The Bank of Japan’s firm approach is backed by Governor Kazuo Ueda’s comments on inflation targets and current economic conditions. Important economic indicators like the BoJ’s interest rate decision greatly influence currency performance, with the next update set for December 2025, predicting a rate of 0.75%, an increase from the previous 0.5%. With the USD/JPY movement approaching 155.50, there is rising tension ahead of major economic announcements. The market is currently favoring the US Dollar, viewing weak employment figures as a temporary issue. However, with the US CPI data due tomorrow and the Bank of Japan’s decision on Friday, the market may experience significant volatility. ### Caution Advised for Traders Traders should be cautious regarding the dismissal of the 4.6% US unemployment rate. A similar situation occurred during the US government shutdown in October 2013, when Nonfarm Payrolls data was temporarily affected and later revised sharply. This history indicates that the underlying weakness in the US labor market might be genuine, which could trap dollar bulls if tomorrow’s inflation data is weak. The Bank of Japan is widely expected to raise interest rates to 0.75%, which should, in theory, boost the yen. This year, the BoJ has moved carefully, only raising rates from 0.25% to 0.50% last September. If they do raise rates but suggest this will be the last hike for a while, we might see a “buy the rumor, sell the fact” scenario where the yen weakens despite the rate increase. For derivative traders, this unpredictability calls for positioning that anticipates a large price swing rather than a definitive direction. Options strategies that benefit from high volatility, like a long straddle, would be wise ahead of the Friday announcement. This strategy enables traders to profit from significant movements, whether the pair reaches 160 with a dovish BoJ or drops to 152 with a surprising hawkish statement. Traders with a directional bias should closely watch key levels. If the US CPI reading exceeds the expected 3% tomorrow, it could reinforce the dollar’s strength, making call options on USD/JPY appealing. Conversely, those betting that the BoJ’s rate hike will finally strengthen the yen should consider buying put options to target a move below the 154 level. Create your live VT Markets account and start trading now.

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