The Japanese Yen is experiencing difficulties due to political uncertainty in Japan. There is growing speculation that Prime Minister Sanae Takaichi may call for snap elections. As a result, buying of USD/JPY is rising, putting pressure on the Finance Minister’s tolerance band. Despite the Federal Reserve’s updates, the Yen is the only major G10 currency that is not gaining ground.

Japan’s Intervention Strategy

Japan’s recent foreign exchange actions show they prefer to wait for a situation that would weaken the USD before stepping in. Previously, the spot rate was around 162 during interventions, and now it sits at 157.9. If risks related to the Fed decrease, USD/JPY could climb to about 160, a key resistance level for the Bank of Japan. This point may challenge the market, affecting trading approaches. The Insights Team consists of journalists who share market insights from experts. This content is part of broader market analysis and does not provide direct financial advice. Recent market activity includes the Euro nearing 1.1700 against the dollar, boosted by concerns about the Fed’s independence. Additionally, gold prices have risen to over $4,610 due to a weaker US Dollar and geopolitical tensions. Solana’s value has increased thanks to ETF inflows and focus on privacy. Global economic forecasts for 2026 suggest a growth rate of 2.9% for G20 countries.

Political Impact on Yen

Finding a good time to buy the Japanese yen is currently challenging. Ongoing political uncertainty in Japan is linked to the ruling LDP party’s approval ratings, which fell below 20% during funding scandals in 2024 and 2025. Discussions about snap elections only add pressure on the yen, prompting traders to sell it for US dollars. The Bank of Japan seems hesitant to buy yen just yet. Looking back at spring 2024 interventions, the Ministry of Finance spent over ¥9 trillion when the dollar-yen rate crossed 160, a level we are approaching again. For now, they appear to be waiting for a major market event, such as unexpectedly low US inflation, to enhance their actions. The core issue lies in the significant difference in interest rates. The Federal Reserve’s key rate is likely to remain around 4.75% through the end of 2025, while Japan’s rate stays near 0.1%. This makes borrowing yen to buy dollars a lucrative move, which is why the yen is the only major currency not strengthening against a broadly weaker dollar. For traders, this hints that volatility will be key in the coming weeks. Purchasing long-dated call options on USD/JPY with a strike price near 160 could allow a position to profit if the pair continues to rise, while minimizing risk if the Bank of Japan intervenes unexpectedly. On the other hand, put options on USD/JPY offer a relatively low-cost way to bet on a quick strengthening of the yen should an intervention occur. Create your live VT Markets account and start trading now.

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