The Bank of Japan (BOJ) will release its Summary of Opinions report on Sunday at 23:50 GMT. This report will share insights on inflation and economic growth and is issued eight times a year, about ten days after the Monetary Policy Statement. As we wait for the report, the USD/JPY pair is trading positively, with the US Dollar gaining strength. The pair may face resistance at the January 23 peak of 159.81 and again at the psychological level of 160.00.

Price Movement Analysis

There is downside support around the 100-day Exponential Moving Average at 154.50. If prices drop further, they might reach the January 30 low of 152.50. Another support level can be found at the January 29 low of 151.95. The Japanese Yen’s value is influenced by the country’s economic performance, BOJ policies, and US bond yield differences. The BOJ sometimes steps in to manage the Yen’s value, which affects its strength. The BOJ’s very loose monetary policy, in contrast to the Federal Reserve’s approach, is widening the yield gap between US and Japan bonds. This affects currency values. During times of market stress, the Yen is seen as a safe-haven asset, increasing its demand and value.

USD JPY Outlook

With the BOJ’s Summary of Opinions coming, let’s look back at early 2025 for context. Back then, the pair was testing the 160.00 level after a new, hawkish Fed chair was appointed. Now, a year later, the main factors remain the same, focusing on the interest rate gap between the US and Japan. The BOJ has been very careful, only raising its policy rate to 0.25% throughout 2025, despite core inflation staying above target. Last week, January’s inflation data showed a national Core CPI of 2.4%, putting pressure on the BOJ to act. However, their hesitation to tighten policies is still affecting the Yen’s value. On the other side, the US economy is doing well, with January’s jobs report showing a strong gain of 265,000 non-farm payrolls. This has kept the Federal Reserve from signaling any rate cuts, keeping the US 10-year Treasury yield around 4.6%. In contrast, the Japanese 10-year government bond yield struggles to stay above 1.1%. This ongoing yield gap of about 350 basis points makes holding US dollars much more profitable than holding Japanese yen. The carry trade, where traders borrow in yen to invest in dollars, remains active, providing support for the USD/JPY pair. Given this situation, buying call options on USD/JPY to position for further gains seems wise for the upcoming weeks. With the spot price currently near 163.20, targeting strikes at 164.50 or the psychological level of 165.00 could bring potential profits. It’s expected that the BOJ will signal a very gradual policy approach, which would strengthen the dollar. However, if the Summary of Opinions includes unexpectedly hawkish language, it could temporarily cause a sharp drop in the pair. To manage this risk, traders might consider buying affordable out-of-the-money put options with a strike around 160.00. Remembering support levels from early 2025, like 154.50, can offer perspective on how much the market has changed in the past year. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now