The USD/JPY exchange rate has pulled back from resistance at around 157.90 but remains supported above the 50-day moving average of about 154.30. In the near term, the exchange rate may stay within a set range, with a chance for upward movement if it breaks above 156.95. Recent Resistance and Pullback Recently, the pair faced resistance near 157.90 in November and has been pulling back since then. Right now, it’s trapped between a low near 154.30 and a high of 156.95 reached earlier in December. If it breaks above 156.95, that could signal a continuation of the upward trend. Currently, USD/JPY has lost some ground after hitting the 157.90 resistance level in November. The pair is now stable, supported by the 50-day moving average near 154.30, and capped by the early December high around 156.95. In the coming weeks, this range-bound action points towards certain trading strategies. With the pair moving sideways, one-month implied volatility has dropped to under 8%, significantly lower than earlier this year. This makes selling options appealing, using strategies like iron condors or short strangles with strikes outside the 154.30 to 156.95 range. This approach profits from the pair staying stable through the holiday period. Implied Volatility and Trading Strategies Despite the current stability, the overall trend is still upward, largely due to the large interest rate gap. The U.S. Fed funds rate is above 5%, while the Bank of Japan’s overnight call rate, even after a recent hike, is just 0.25%. A clear break above 156.95 should be seen as a signal to buy call options or use bull call spreads to benefit from the next move up. We should remember the significant interventions by Japan’s Ministry of Finance back in 2024 when the pair crossed the 160 level. While we’re not at those extremes now, a rapid rise toward 158.00 could prompt officials to buy yen again, creating a soft ceiling for the market and raising risks for overly aggressive bullish positions. The Bank of Japan is tightening its policy, but at a much slower pace than other central banks. Recent data showed Tokyo’s core inflation stayed above the 2% target for the 30th month in November, yet the BOJ remains cautious. This reluctance to raise rates aggressively will likely keep the yen weak and support the dollar. Create your live VT Markets account and start trading now.

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