As investors await the Bank of Japan's policy decision on Thursday for clues on the currency pair's future trajectory, trading volume for USD/JPY options has plunged to a one-month low, with activity dwindling to a trickle.

Data from the Depository Trust & Clearing Corporation shows Monday's trading volume was the lowest this month, with Tuesday failing to show any improvement. This suggests limited market interest in one of the world's most liquid currency pairs, whose movements will also be influenced by the Federal Reserve's upcoming policy decision.

Antony Foster, head of G-10 spot trading at Nomura Securities in London, noted, "USD/JPY has struggled to break above 153.30—we need a decisive move past this level to gain upward momentum." The pair has recently faced resistance around 153.27.

Since Sanae Takaichi's victory in the Liberal Democratic Party leadership election earlier this month—paving the way for her to become Japan’s next prime minister—USD/JPY has traded within a tight range. Market expectations that her win could lead to looser fiscal policies and a slower pace of BOJ rate hikes initially weakened the yen, though haven demand from trade tensions and verbal intervention have capped losses.

Japan’s Economy Minister Minoru Kihara stated that the country could boost its long-term potential growth rate by stimulating demand and maintaining a tight labor market while adhering to fiscal discipline. He also emphasized that the government is closely monitoring how exchange rate fluctuations impact Japan’s economy.

While most economists expect the BOJ to hold rates steady at its first meeting under Takaichi’s administration, markets will scrutinize the decision for hints on future policy moves.

One of the biggest uncertainties facing the BOJ is Japan’s shifting political landscape. Given Takaichi’s support for expansionary economic policies, investors believe rate hikes may be delayed.

Meanwhile, despite the U.S.-Japan trade deal partially improving trade prospects, BOJ officials are still assessing the full impact of higher tariffs on Japan’s economy. The central bank is unlikely to make major revisions to its quarterly growth and inflation forecasts but is growing increasingly cautious about inflation risks.

Ivan Stamenovic, head of G-10 FX trading for Asia-Pacific at Bank of America, remarked, "Market sentiment toward the yen leans cautious rather than aggressive."