1-3 Week Outlook
In the 1-3 week outlook, recent trading has put USD above 155.00, with a prior range between 153.10 and 155.00. Although an upward bias is present, a lack of increased momentum may limit gains near 155.55. Should the USD fall below 153.95, this could indicate a weakening in the upward trend.
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We see the USD/JPY pair has an upward bias and is likely to test the 155.20 level in the coming weeks. This view is reinforced by the clear divergence in central bank policies. The latest US inflation data from October 2025 came in at a stubborn 3.1%, making it unlikely the Federal Reserve will consider rate cuts soon.
In contrast, the Bank of Japan’s policy remains significantly more accommodative, with its key interest rate at just 0.1%. This wide interest rate differential between the Fed’s 5.25% and the BoJ’s 0.1% continues to favor the US dollar. The appeal of the carry trade, where traders profit from this rate gap, provides strong underlying support for the pair.
Strategic Considerations
Given that gains may be limited near 155.55, a bull call spread could be an effective strategy. This would involve buying a call option with a strike price like 154.50 and selling a call option with a higher strike, such as 155.50. This defines our risk and allows us to profit from a moderate rise while capping potential gains, which aligns with the current outlook.
However, we must remain alert to the risk of intervention from Japanese authorities. We saw them step into the market back in late 2022 and again in 2024 when the rate passed the 151-152 threshold, so a move toward 155 will attract close scrutiny. Any sudden official statements or actions to strengthen the yen could quickly reverse our position.
The critical support level to watch is 153.95. A decisive break below this price would suggest the current upward momentum has failed. If that happens, it would be a clear signal to unwind bullish derivative positions and re-evaluate the market’s direction.
