The USD/JPY pair fell back to around 158.00 after hitting a weekly high of 159.45. During Friday’s European session, the Japanese Yen dropped by 0.3% as officials warned about potential interventions. Finance Minister Satsuki Katayama mentioned that there might be a joint intervention with the US to support the Yen. He stressed that all options are being considered and highlighted the importance of the joint statement with the US regarding intervention.

Yen Hits 18-Month Lows

The Yen has reached its lowest point in 18 months due to worries about Prime Minister Takaichi potentially calling a snap election, which could increase fiscal pressures. At the same time, US economic data showed positive signs, including jobless claims reaching their lowest levels since November and manufacturing figures exceeding expectations. The Bank of Japan’s (BoJ) currency policy plays a crucial role in the Yen’s performance, with interventions aimed at managing its value. Past ultra-loose monetary policies from the BoJ contributed to the Yen’s decline, but recent adjustments are providing some support. Historically, the gap between Japanese and US bond yields has favored the US Dollar. Recent changes in BoJ policy and rate cuts by other banks have narrowed this gap, affecting currency dynamics. The Yen is also viewed as a safe-haven investment during times of market uncertainty.

Trade Patterns and Predictions

We are seeing a familiar trend as the USD/JPY tests the 158.00 level again. In late 2025, warnings from Japanese officials came when the pair approached 160.00. Now, on January 16, 2026, with the pair at 157.50, the market is once again challenging the Ministry of Finance’s stance. Last year’s intervention threats temporarily lowered the pair, but the core issue remains. The Bank of Japan has been very careful, keeping its policy rate at just 0.10%, which has done little to close the significant interest rate gap with the United States. This ongoing divergence continues to favor selling the Yen and buying the Dollar during dips. On the other hand, the US Dollar remains strong. December 2025’s Consumer Price Index data indicated inflation at a steady 3.1% year-over-year, which keeps the Federal Reserve from hinting at any immediate rate cuts. The market currently predicts less than a 25% chance of a rate cut by the Fed’s March 2026 meeting, which supports the Dollar’s strength. For derivative traders, this creates a tense situation, as the implied volatility on USD/JPY options is expected to be high. The risk of a sudden, sharp drop due to intervention makes selling options, or being short volatility, very risky. We should prepare for a big price swing instead of a slow upward trend. A direct approach is to consider buying short-term put options to benefit from a potential intervention, which has historically resulted in rapid JPY strengthening. For example, during the fall of 2022, interventions caused the USD/JPY to drop by over 5 yen in just one day. These puts can also serve as an inexpensive hedge for those holding long USD/JPY positions. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now