Japan’s main tariff negotiator, Ryosei Akazawa, and US Commerce Secretary Howard Lutnick confirmed that the trade agreement between the United States and Japan strengthens their strategic and economic ties. Both sides agreed to keep working on the implementation of their trade deal as Japan experiences a leadership change. The USD/JPY pair had a slight drop of 0.06%, bringing it to 152.97. The Japanese Yen, one of the most widely traded currencies, is affected by Japan’s economic performance, the Bank of Japan’s policies, bond yield differences, and traders’ risk appetite.

Bank Of Japan’s Monetary Policy

The Bank of Japan (BoJ) intervenes in currency markets to control the Yen’s value. From 2013 to 2024, the BoJ maintained an ultra-loose monetary policy, which caused the Yen to weaken. Recently, steps to unwind this policy have helped strengthen the currency. Over the last ten years, the BoJ’s commitment to an ultra-loose monetary policy widened the gap with other central banks, particularly the US Federal Reserve. In 2024, the BoJ decided to phase out this approach, reducing the gap as global interest rates decline. The Yen is considered a safe-haven asset, attracting investors during uncertain times due to its reliability, which boosts its value compared to riskier currencies. With the USD/JPY trading at 152.97, there’s significant risk for those holding long dollar positions against the yen. This level is historically high. The confirmation of the US-Japan trade agreement does little to shift the currency’s underlying factors. The market is mainly focused on differing central bank policies and the rising risk of direct intervention.

Monetary Policies and Currency Trends

The BoJ is gradually moving away from its ultra-loose policy that ended in 2024. In September 2025, it raised its policy rate to 0.25% as inflation remained above 2%. This slow normalization suggests a commitment to support the yen in the medium term, contrasting with the previous decade’s policies. Meanwhile, the US Federal Reserve has begun a cautious easing cycle, cutting rates twice this year as inflation dipped to 2.8%. This shift is closing the interest rate gap between the US and Japan, which had previously weakened the yen. This trend may limit substantial further gains for the USD/JPY pair. We should recall that the Japanese Ministry of Finance intervened in spring 2024, selling dollars to protect the yen as the exchange rate neared 160. Currently, at 152.97, we are in a range that could prompt official actions again. The risk of another intervention to boost the yen is quite high, creating a potential ceiling for the pair. For derivative traders, betting on further yen weakness is risky in this environment. Expect increased volatility, making options strategies appealing. Buying JPY call options (or USD/JPY put options) may provide a defined-risk opportunity to profit if the yen appreciates sharply. Given the ongoing global economic uncertainty and slowing growth forecasts, the yen’s traditional status as a safe haven could resurface. If a significant risk-off event occurs in global markets, it would likely lead to capital flows into the yen, further strengthening the currency in the coming weeks. Create your live VT Markets account and start trading now.

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