Japan’s Finance Minister, Satsuki Katayama, has announced plans for a significant economic stimulus package. However, the exact amount is still unknown as discussions about funding and political implications for Japan’s public finances are ongoing. Currently, the USD/JPY pair has increased slightly by 0.02%, reaching 155.25. The Japanese Yen, a major global currency, is affected by the Bank of Japan’s (BoJ) policies, bond yield differences, and trader risk appetite.

Bank of Japan Policies

The Bank of Japan plays a crucial role in managing currency value, sometimes intervening to lower the Yen’s value. From 2013 to 2024, a very relaxed monetary policy weakened the Yen, as it diverged from the policies of other central banks. However, recent changes by the BoJ have begun to support the Yen. The BoJ’s earlier policies created a gap in yields with the US, which benefitted the US Dollar. In 2024, the BoJ started to change this approach, while other major central banks began cutting rates, reducing the yield difference. The Yen is seen as a safe-haven currency during times of market stress, making it a reliable investment. During uncertain periods, it tends to gain strength against riskier currencies.

Economic Stimulus and Market Effects

The government’s plan for a “sizable” economic package brings uncertainty to the market. This kind of spending tends to be inflationary and could further weaken the Yen. We anticipate that this uncertainty will lead to volatility in the coming weeks. With USD/JPY trading at 155.25, the Yen is close to historic lows against the Dollar. It’s important to remember that the Ministry of Finance intervened in 2022 and 2024 when the Yen fell below 150, indicating a strong support level. This situation makes it risky for anyone betting on continued weakness of the Yen. A large stimulus package might compel the Bank of Japan to more aggressively adjust its loose monetary policy to combat inflation. This creates a conflict for the currency: fiscal policy could push the Yen down, while tighter monetary policy could push it up. Recent data suggests that the Bank of Japan may adopt a more hawkish stance, as Japan’s core inflation has remained above target, reaching 2.8% in October 2025. Meanwhile, the US Federal Reserve has cut its key rate to 4.5% earlier this year, shrinking the yield difference that previously favored the Dollar. This narrowing gap has historically pressured the USD/JPY pair downward. With these opposing factors, there’s potential for options strategies that can benefit from significant price movements, regardless of direction. Buying straddles or strangles on USD/JPY could be an effective way to trade the anticipated volatility after the stimulus package’s size is revealed. Traders should prepare for a sudden shift instead of a gradual change. Additionally, we should consider the Yen’s position as a safe haven, particularly amid ongoing global growth concerns. Any unexpected global market shocks, similar to supply chain disruptions seen in early 2025, could lead to a swift flight to safety. This could result in a rapid strengthening of the Yen, catching many traders off guard. Create your live VT Markets account and start trading now.

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