The Japanese yen gave up about half of its early gains, but it was still 0.2% higher near 156.00 per US dollar in European trading on Thursday. USD/JPY fell after two straight days of gains, following comments from Bank of Japan (BoJ) Governor Kazuo Ueda about possible rate increases. In an interview with the Yomiuri newspaper published on Tuesday, Ueda said the BoJ will review the data at its March and April meetings. He said the bank will then decide whether to raise interest rates later this year. He also said the BoJ will keep raising rates if it becomes more confident that its forecasts will be met.

Policy Signals And Market Reaction

Over the past two sessions, the yen came under pressure after Mainichi reported that Prime Minister Sanae Takaichi voiced concerns about more BoJ rate hikes during a meeting with Ueda on 16 February. The government also nominated Toichiro Asada and Ayano Sato to the BoJ’s nine-member board. Both are seen as supportive of economic stimulus. The US dollar was slightly stronger ahead of nuclear talks between the US and Iran in Geneva later on Thursday. The US Dollar Index hovered near 97.70. The US is pushing Iran to drop plans to build nuclear facilities. In early 2025, markets also saw mixed messages. The BoJ hinted at rate hikes, while government officials raised concerns. This split view increased uncertainty and signaled the policy push-and-pull that followed. Those clashing messages were an early sign of the yen volatility that came next. Ueda’s more hawkish tone later turned into action. The BoJ has delivered two small rate hikes since then, taking the policy rate to 0.10%. The move was largely driven by persistent inflation. Last month’s data showed core CPI at 2.8%, still well above the BoJ’s 2% target. In that environment, the government’s stimulus concerns became less important than inflation control. On the US side, the Federal Reserve has kept its policy rate near 5.25% to fight stubborn services inflation. This has preserved a wide interest-rate gap between the two currencies. That yield advantage continues to make holding US dollars more appealing than holding Japanese yen from an income perspective.

Implications For Positioning And Risk

For derivatives traders, this wide rate gap can make long USD/JPY positions attractive because of positive carry. But the trade is not risk-free. The pair is now very sensitive to any hint of further BoJ tightening or verbal intervention from Japan’s Ministry of Finance. Last October, a few official comments helped the yen strengthen by nearly 2% in a single session. Given this setup, buying USD/JPY call options can be a way to target more upside while keeping potential losses defined. Past episodes—such as the sharp yen rallies in late 2022 and across 2024—show that implied volatility can jump without warning. Building trades that allow for sudden volatility spikes may be key to managing risk in the coming weeks. Geopolitics also matter. Events like the nuclear talks referenced in 2025 can affect the US dollar’s role as a safe-haven currency. Today’s global trade negotiations and upcoming elections in Europe are similar drivers that can trigger short-term moves into the dollar. These forces can briefly outweigh domestic monetary policy signals. Create your live VT Markets account and start trading now.

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