The Japanese yen (JPY) traded defensively against the US dollar and lagged most G10 peers, even after May producer price inflation surprised to the upside at 6.3% year on year. Markets have fully priced a 25 bps Bank of Japan (BoJ) rate increase at next Tuesday’s meeting, and another 25 bps move is priced by December. Reports that Governor Kazuo Ueda has been hospitalised raised questions about leadership at the decision, though pricing for the meeting remained intact.
In USD/JPY, price action was described as constructive, with momentum indicators continuing to firm. The relative strength index (RSI) was rising and nearing the overbought threshold of 70, a signal commonly watched in technical analysis. Resistance was seen as limited ahead of 162, leaving the pair biased towards further gains if the trend persists.
Yen Weakness and BoJ Rate Hike Expectations
We see the Japanese Yen remaining weak against the US dollar, even with Japan’s May Producer Price Index data coming in stronger than expected. The currency is currently underperforming most of its G10 peers as we head into the North American session. As of today, June 10, 2026, the USD/JPY is trading around 158.50.
The market has fully priced in a 25 basis point interest rate hike from the Bank of Japan at its meeting next week on June 17. In fact, overnight index swaps now show a 95% probability of this hike occurring, with another full hike expected by the end of the year. This hawkishness is supported by Japan’s latest national CPI data, which showed inflation holding firm at 2.9% year-over-year.
Technical Outlook and Options Strategy
Given this momentum, we believe the technical picture for USD/JPY remains bullish, with limited resistance before the 162 level. We would consider buying near-term USD/JPY call options to capitalize on this expected upward move. The rising Relative Strength Index suggests strong buying pressure, though it is approaching overbought territory.
However, traders must remain cautious of potential government intervention, as we last saw from the Ministry of Finance when the rate crossed 160 back in late 2024. This history makes holding outright long positions risky as we approach that key psychological level. One-month implied volatility has already ticked up to 9.5% in anticipation of the BoJ meeting and potential currency intervention.
To manage this risk, we favor using a bull call spread rather than buying an outright call. For instance, buying a 159 strike call while simultaneously selling a 161.50 strike call for the July expiry could be an effective strategy. This approach defines the risk and cheapens the cost of the trade while still profiting from a move towards our target just below 162.
