Japan’s unemployment rate in June held steady at 2.5%. This number met expectations and was the same as the previous month’s rate. The job-to-applicant ratio was 1.22, which was below the expected 1.25 and down from the earlier figure of 1.24.

Impact on the Japanese Yen

This data usually has little effect on the Japanese yen. In June 2025, Japan’s labor market remained tight, with unemployment stable at a low 2.5%. While this indicates a strong economy, the report typically does not have a direct impact on the yen. Instead, we should consider what this means for the Bank of Japan’s (BoJ) next steps. The main question is if this tight labor market will lead to sustainable wage growth that the BoJ needs to change its policy. Recent data has been mixed; for instance, Tokyo’s Core CPI for July 2025 fell to 2.1%, slightly below expectations. This gives the BoJ a reason to remain cautious, likely resulting in continued yen weakness in the short term.

Interest Rate Differences and Carry Trade

The key factor for the yen remains the large interest rate gap between Japan and other major economies, especially the United States. With the U.S. Federal Reserve keeping its key interest rate above 5% in the first half of 2025, borrowing in yen to invest in dollars remains attractive. This steady jobs report doesn’t change the allure of this profitable carry trade. Looking back, we saw a similar trend in 2023 and 2024, where good domestic indicators were overlooked by a BoJ focused on ensuring inflation wasn’t temporary. Until the annual “shunto” wage negotiations result in sustained growth that keeps inflation above target, betting against the BoJ’s supportive stance has not been profitable. We expect this trend to continue for now. In the coming weeks, the mix of low volatility but underlying tension presents an opportunity. We find value in buying longer-term, inexpensive options that could profit from a sudden policy change later this year. For example, purchasing puts on the USD/JPY currency pair is a low-cost way to prepare for any unexpected hawkish signal from the BoJ. Create your live VT Markets account and start trading now.

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