USD/JPY bulls may consider pruning positions as market liquidity thins and attention turns to December policy meetings.

A series of holidays over the next several weeks could create choppy trading conditions, especially if expectations of a BOJ hike in December start to build.

The pair has remained in the upper end of it 20-day Bollinger band since Japan Prime Minister Shigeru Ishiba commented on Oct. 2, following a meeting with Bank of Japan Governor Kazuo Ueda. Ishiba indicated that he hopes the central bank will exercise caution when raising rates further. Since then, USD/JPY has soared and futures positioning has switched from long to short yen.

However, USD/JPY’s upward momentum may be nearing an end. First, Ishiba's stance on BOJ hikes may be more supportive after a recent runoff strengthened his position. Tackling inflation is among his policy objectives.

Second, Japanese economic data, ongoing wage talks and a weak yen may convince Ueda that more BOJ tightening is needed. The country will release the Q3 GDP deflator on Friday with October CPI and November services PMI is due next week. Currently, odds of a December BOJ hike are roughly even.

Third, despite hawkish comments from Fed officials, markets see the central bank on track to cut in December.

While a BOJ hike may help ease yen selling pressure, a reversal lower in USD/JPY may be difficult to achieve until after the U.S. presidential transition in January. Option markets are already pricing anticipated volatility, making the July 11 low of 157.40 a level some might use to take profits.

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(Robert Fullem is a Reuters market analyst. The views expressed are his own.)

((robert.fullem@thomsonreuters.com;))