The USD/JPY exchange rate has jumped over 151.00, hitting an eight-month high close to 153.00 and possibly reaching 155.00 soon. This increase is due to the yen’s weakness, influenced by expected ongoing economic support from Prime Minister Sanae Takaichi and weak wage data that makes the Bank of Japan (BOJ) cautious. In Japan’s August cash earnings report, earnings rose only 1.5% year-on-year, falling short of the 2.7% forecast and following downward revisions for July. Pay growth for full-time workers stayed steady at 2.4% year-on-year, while overall productivity growth in Japan was about 0.7%.

Expected BOJ Actions

Despite market doubts, it seems likely that the BOJ will increase interest rates in its meeting on October 30, as signs of economic growth and rising inflation emerge. However, market swaps indicate there is less than a 30% chance of a 25 basis point hike. The Tankan business survey shows continued GDP recovery and progress towards the BOJ’s 2% inflation goal. With the USD/JPY heading towards 155, short-term call options seem like a good choice for the upcoming days. The pair has clearly broken through the 151 and 153 levels, indicating an upward trend fueled by expectations of ongoing government support. Even though August wage data was weak at 1.5%, we should consider the broader picture of Japan’s economy. Strong wage agreements made in spring 2025, the highest in over thirty years, are still working their way through the economy. This, along with inflation staying above the BOJ’s 2% target, supports the idea of changing policies. Currently, markets see less than a 30% chance of a rate hike at the October 30 meeting, presenting a significant opportunity for traders who anticipate a surprise. Japan’s Tankan business survey indicates an ongoing recovery, and with core inflation remaining steady at 2.8% in September, the BOJ has solid reasons to act sooner than many investors expect.

Market Positioning Strategy

We recall that back in 2022, officials intervened to support the yen when the exchange rate reached the 150-151 range, showing their concern over rapid depreciation. As we near the 155 mark, the likelihood of intervention increases, making put options a smart choice for hedging or speculative positions. Implied volatility may rise as the BOJ meeting approaches, so establishing positions early could save money. Meanwhile, the US dollar remains strong due to expectations from the Federal Reserve, as core inflation stays above 3%. The ongoing US government shutdown also boosts demand for safe-haven assets like the dollar, adding downward pressure on the yen. This situation maintains upward pressure on USD/JPY, setting up a challenging environment ahead of the BOJ’s decision. Create your live VT Markets account and start trading now.

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