The Bank of Japan is keeping its monetary policy easy since inflation is still below its target. The Bank warns that maintaining such a loose policy for too long could make it hard to reach the 2% inflation goal. The USD/JPY pair increased by 0.15%, now trading at 154.80. The Japanese Yen is currently weakest against the New Zealand Dollar, with a drop of 0.18% against it.

Performance Of The Japanese Yen Against Major Currencies

The Japanese Yen’s performance against major currencies shows its shifts in value. It decreased by 0.15% against the US Dollar, 0.09% against the Euro, and 0.14% against the British Pound. The Bank of Japan plans to stick with its easy-money policy because inflation is still below target. This keeps interest rates in Japan close to zero, widening the gap with rates in other big economies. This likely means the Yen will stay under pressure. Recent economic data from October 2025 shows Japan’s core inflation at 1.8%, still shy of the 2% target. Additionally, the economy is slowing down, with a slight contraction of 0.2% in Q3 2025 GDP. This leaves the central bank with little room to think about raising interest rates soon.

US Federal Reserve Interest Rate Strategy

On the other hand, the US Federal Reserve is keeping its key interest rate at 4.50% to deal with ongoing inflation, which is currently at 3.1%. This large interest rate difference of over 4% makes borrowing Yen to invest in US Dollars—known as the carry trade—very profitable. This trend is driving the USD/JPY pair higher. Given this backdrop, buying USD/JPY call options seems like a smart move for the upcoming weeks. This strategy allows traders to gain from any further weakness in the Yen while limiting potential losses. If current policies stay the same, movement towards the 158-160 level seems likely. However, we need to watch for potential government intervention. The USD/JPY rate of 154.80 is close to levels that triggered Yen-buying interventions in 2022 and 2024. The Ministry of Finance usually steps in to curb rapid currency falls. This risk makes holding long option positions, which have defined losses, more appealing than maintaining a short Yen spot or futures position. The mixed signals from the Bank of Japan, highlighting the risks of long-term easing while maintaining it, could cause sudden changes in market sentiment. Therefore, derivative traders might also look at strategies that benefit from increasing volatility, like a long straddle. This would be profitable if there is a significant move in either direction due to a surprise policy change or direct market intervention. Create your live VT Markets account and start trading now.

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