The USD/JPY exchange rate has fallen to around 156.00, moving away from last week’s growth as market activity slows down during the holiday season. The Bank of Japan (BoJ) may step in to stabilize the Yen if necessary, with Finance Minister Satsuki Katayama stating they can manage “excessive moves.” Following the Federal Reserve’s recent decisions, there are expectations for additional rate cuts, with at least two more expected by September. The BoJ’s previous loose monetary policies have widened the gap between its policies and those of the U.S., causing the Yen to weaken against the U.S. Dollar.

Factors Affecting the Japanese Yen

The value of the Japanese Yen is influenced by Japan’s economy and the BoJ’s decisions. Changes in the policy differences between the BoJ and other major central banks can greatly affect the Yen’s value. As a safe-haven currency, the Yen tends to be more attractive during market turbulence, increasing its demand and strengthening its value when global markets are under stress. As we approach the end of 2025, the USD/JPY remains around 156.00, and we can expect more market volatility. With fewer traders active during the holiday period, large orders can lead to significant price changes in the coming weeks. This reduced trading activity makes the market sensitive to abrupt shifts. The prospect of the Bank of Japan intervening to strengthen the Yen creates uncertainty for those holding long dollar positions. We saw this happen multiple times in late 2022 when the rate exceeded 150, and officials are again warning about “excessive moves.” Recent data from the options market shows an increase in JPY call options, indicating that traders are willing to pay more to guard against a sudden drop in USD/JPY.

Impact of Federal Reserve Rate Cuts

The Federal Reserve’s third consecutive rate cut is putting pressure on the dollar. This policy reduces the difference between U.S. and Japanese government bond yields, which historically favors a stronger Yen. Currently, the U.S. 10-year Treasury yield is close to 3.5%, narrowing the gap with the 0.9% Japanese 10-year bond yield to its lowest level since early 2024. Market expectations for further rate cuts outpace even the Federal Reserve’s own forecasts. The CME FedWatch Tool now indicates a more than 60% chance of another rate cut by the March 2026 meeting, suggesting that the dollar may weaken if upcoming economic data shows any signs of weakness. The combination of intervention risk and differing central bank policies points to higher price volatility ahead. Implied volatility for one-month USD/JPY options has recently risen to over 11%, noticeably higher than just a few months ago. Traders may want to consider strategies to benefit from significant price shifts, regardless of the direction. Additionally, we are keeping an eye on the global economic landscape, which appears uncertain as we move into 2026. Recent declines in manufacturing data from China and Europe have made traders cautious. Any further indications of global stress could enhance the Yen’s status as a safe-haven currency. Create your live VT Markets account and start trading now.

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