The Japanese Yen (JPY) fell by 0.5%, reaching 158.91 against the US Dollar (USD). This is its lowest point since July 2024. The decline is linked to speculation about a potential snap election under Prime Minister Sanae Takaichi. The yen’s drop now exceeds the previous low of 158.87 from January, causing concerns about possible market intervention. Japanese officials have warned against excessive and speculative currency movements, showing their worries about further devaluation.

Ongoing Negative Factors Affecting the Yen

Several ongoing negative factors impact the yen. These include the US-Japan yield gap, negative real interest rates, and capital outflows. There’s a risk of the yen falling below 160 USD/JPY, and intervention may occur, especially considering past actions in response to market fluctuations. We are seeing a similar situation with the yen as we did in early 2025, when political uncertainty and a large interest rate gap drove the dollar-yen rate near 159. Now, the rate is hovering around 159.50. The primary factor keeping pressure on the yen is the US-Japan interest rate gap. The US Federal Funds rate stands at 4.5%, while the Bank of Japan’s policy rate is only 0.1%. This difference encourages selling the yen. Recent CFTC data shows that non-commercial traders have increased their net short position against the yen for the third week in a row.

Options and Intervention Risks

The one-month implied volatility for dollar-yen has dropped to a six-month low of just 7.5%, making options relatively cheap. Traders might consider buying call options to benefit from a possible rise above the 160.00 psychological level. On the other hand, buying put options is a cost-effective way to protect against a sudden rally in the yen due to official intervention. It’s important to remember that the Ministry of Finance intervened in late 2022 and mid-2025 when the yen was declining too quickly. A quick, speculative move above the 160.20 mark, which was last year’s high, would likely prompt a strong official response. As a result, holding short yen positions carries significant risk in the coming weeks. Create your live VT Markets account and start trading now.

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