USD/JPY drifted within a narrow range Tuesday, constrained by month-end dollar selling and a dip in long-term U.S. Treasury yields, as traders await Thursday’s Bank of Japan policy meeting. Open interest data indicates yen shorts have been building since USD/JPY crossed the 150 threshold on October 17. Yet, elevated overnight yen volatility at 10.6% and wide spreads on bearish risk reversals suggest a sense of caution among investors. Though the BOJ is expected to hold rates steady at 0.25%, recent yen weakness and hints from Governor Ueda about cautious policy adjustments have heightened concerns that he could adopt a more hawkish tone in response to Japan’s low inflation and recent global stability.

From a technical standpoint, USD/JPY faces resistance at the double-top formed around 153.87-153.88, with the 154.00 psychological barrier looming just above. A break through this resistance could signal further bullish momentum for USD/JPY. On the downside, initial support lies at 152.38, the October 24 high, with additional support at Tuesday’s low of 152.76 and the critical 152.00 pivot level. A breach below 152.00 would expose the pair to further declines toward the 200-day moving average at 151.50, which could provide a key support level for yen bulls if Governor Ueda’s remarks trigger a pullback in USD/JPY.

With the BOJ decision and Ueda’s press conference on the horizon, USD/JPY could experience heightened volatility, particularly if Ueda signals any openness to tighter policy amidst Japan’s economic uncertainty. Should Ueda adopt a dovish tone, yen shorts may gain confidence, pushing USD/JPY toward and possibly above 154.00. Conversely, even a slight hawkish pivot could spook yen bears, driving profit-taking and potentially pulling USD/JPY down to test support levels near 152.00. Traders will also keep an eye on upcoming U.S. data releases, as any indication of continued U.S. strength could reinforce the dollar’s advantage over the yen.