USD/JPY on the Verge of a Downward Break

The Japanese yen has steadied against the US dollar ahead of the Bank of Japan's meeting on September 18, where markets are pricing in around 20 basis points of tightening. This could lend near-term support to the yen, and traders are positioning for potential yen strength.

Currently, USD/JPY is trading within a narrow range between 158.00 and the upper 159s. With implied volatility remaining underpriced, long put options on USD/JPY are highly attractive. We recommend buying short-dated USD/JPY put options with strike prices near 156.00 to capture sudden yen appreciation.

The Bank of Japan's forward guidance for late 2026 and early 2027 will also be crucial in determining the direction of the yen. Any hawkish signals from policymakers regarding further rate normalization will likely accelerate JPY gains, making it essential for traders to keep a close eye on these developments.