The USD/JPY started this week at 157.57, affected by rising tensions between the US and Europe. This led the value to drop to 157.44, but it bounced back to about 158 due to international interest and increasing yields. On January 21, the USD/JPY climbed to approximately 158.50 after yields spiked due to political changes in Japan. It briefly fell to around 157.50 when US and Japanese officials urged calm, but then stabilized at 158.

The Bank Of Japan’s Decision

The Bank of Japan decided to keep interest rates steady while updating its inflation forecast. This led to selling of the yen, pushing the USD/JPY over 159. After Governor Ueda’s press conference, the pair quickly dropped to 157.50 before recovering to just under 158.50. The FXStreet Insights Team has shared various market notes. The information is meant for educational use only and should not be taken as financial advice. Individuals are responsible for their own investment decisions. Investing in open markets comes with risks, including the potential loss of all capital. The author’s views do not represent FXStreet, and there is no liability for mistakes or losses. Last week, the USD/JPY demonstrated significant volatility, fluctuating between 157 and 159. This erratic movement highlights uncertainty in the market. Now, all eyes are on the upcoming Federal Reserve meeting, which will influence the market’s direction for the coming weeks.

Future Strategies After The Fed Meeting

In this kind of market, simply buying or selling futures could be risky. Instead, we should consider options strategies that can benefit from large price movements, regardless of which way they go. Buying straddles or strangles might be a wise strategy to take advantage of the expected volatility following the Fed’s announcement. The Cboe’s yen volatility index (JYVIX) spiked to a 12-month high of 13.5 last week, reflecting market anxiety. Currently, the CME FedWatch tool shows a 90% chance that the Fed will maintain rates. The true risk—and opportunity—lies in the Fed’s guidance on future policies. The Bank of Japan’s recent hawkish inflation update wasn’t unexpected, especially since Japan’s national core CPI for December 2025 was 2.8%, staying above the 2% target for over a year and a half. This difference in policy between Japan and the Fed puts us in a situation similar to what we observed in 2023 and 2024. Back then, warnings often preceded direct market actions when the yen dropped too quickly. We should be alert for any moves back toward the 159 level that was broken last week. If a dovish statement from the Fed causes the dollar to rise sharply, we can anticipate more urgent pleas for calm from Japanese officials. These verbal interventions led to sharp reversals last week and indicate critical entry or exit points for short-term trading. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now