USD/JPY volatility hits peak as traders brace for BOJ policy decision

Implied volatility on USD/JPY has surged to its highest level in the current cycle as the cost of hedging Japanese yen exposure spikes ahead of the Bank of Japan's policy decision. Options markets are pricing an outsized move in the pair, reflecting genuine uncertainty over whether the BOJ will deliver hawkish forward guidance on further normalisation or maintain a cautious stance. The yen's recent strength has already pushed USD/JPY toward the technically significant 155.00 handle, which now serves as the primary support pivot; a decisive break would expose lower levels and confirm a broader yen recovery, while a hawkish disappointment could trigger a sharp short-covering rally in the dollar. Risk reversals have skewed toward yen calls, indicating demand for downside protection in USD/JPY. Traders should be aware that elevated premiums make long-volatility strategies expensive, and post-decision volatility crush is a material risk. Cross-yen pairs including EUR/JPY and GBP/JPY are similarly exposed to the announcement.