USD/JPY rose 0.17% to about 159.70 in European trade on Tuesday. The move came as the US Dollar strengthened ahead of the two-day Federal Reserve meeting starting later in the day.
The US Dollar Index (DXY) was up 0.25% near 98.75. Markets expect the Fed to keep rates unchanged at 3.50%–3.75% for a third meeting in a row.
Bank Of Japan Policy Outlook
The Bank of Japan kept its policy rate steady at 0.75%. Three board members, Hajime Takata, Naoki Tamura, and Junko Nakagawa, dissented and called for a 25 basis point rise to 1.0%.
BoJ Governor Kazuo Ueda said further tightening is possible but gave no clear timing. The yen still performed better than several other currencies.
USD/JPY remained biased upwards while holding above the 20-period EMA near 159.22. Price rebounded after testing the Descending Triangle breakout area near 159.00.
The RSI was near 57, showing positive momentum without being overbought. Resistance sits at 160.46, while support is at 159.22 and around 157.57; a daily close below 157.57 would point to a wider correction.
Late 2025 Context And Implications
Looking back at the situation in late 2025, we saw the USD/JPY rate testing the 159 level amid a hesitant Bank of Japan. Today, with the pair trading around 168.50, it is clear that the bullish trend identified then was the correct one to follow. The key driver remains the wide interest rate differential between the US and Japan.
The Federal Reserve, which was holding rates at 3.50%-3.75% in 2025 due to inflation worries, eventually did enact further tightening. With the Fed funds rate now at 4.00%-4.25% and recent US inflation figures finally cooling to 2.8%, the peak of the hiking cycle appears to be behind us. This stability in US rates provides a clear baseline for carry trades.
The dissent we saw within the Bank of Japan back in 2025 was a significant early signal for their policy shift. Those calls for a rate hike to 1.0% were a preview of the gradual tightening that brought Japan’s policy rate to its current 1.25%. Even with these hikes, the BoJ has moved much more slowly than the Fed.
This policy divergence continues to favor holding the US Dollar over the Japanese Yen. The interest rate gap, which was a major factor in 2025, has persisted, supporting the USD/JPY’s continued climb. We see that the forward markets are still pricing in this differential for at least the next two quarters.
For derivative traders, this suggests that selling out-of-the-money JPY call options remains a viable strategy to collect premium, betting that the Yen will not strengthen significantly. Given the high carry, using options to structure bullish positions on USD/JPY, such as call spreads, allows for profiting from further upside while defining risk. This is particularly useful as the pair moves into territory not seen in decades.
However, we must remain vigilant for signs of official intervention from Japanese authorities, a risk that grows with every new high. In October 2022, authorities intervened when the pair crossed 150, and we are now far beyond that level. Using defined-risk options strategies is therefore critical to protect against a sudden, sharp reversal triggered by intervention.
