Bank of Japan Governor Kazuo Ueda has emphasized plans for ongoing rate hikes to boost inflation and economic growth. Currently, the USD/JPY is fluctuating between 155.00 and 158.00, which raises the possibility of government action in the foreign exchange (FX) market if the yen continues to strengthen. Governor Ueda’s latest remarks highlight a focus on linking rate hikes with improvements in the economy and inflation stability. He aims to achieve steady inflation and long-term growth by making suitable monetary adjustments and aligning wage growth with inflation.

Pressure on the Yen

A weak yen puts more pressure on the Bank of Japan (BoJ) to increase rates and could lead to government intervention in the FX market to support the yen. The current stabilization of USD/JPY at higher levels is favorable, but risks of intervention grow if USD/JPY gains strength and approaches last year’s peak of 158.87. The increased pressure on long-term Japanese Government Bonds suggests that the government needs to regain confidence in fiscal discipline. Taking such steps could help ease the selling pressure on the yen. Looking back to early 2025, the market closely watched Governor Ueda’s hawkish signals. At that time, the BoJ clearly indicated its intention to keep raising rates, which created tension as USD/JPY hovered around 158. This situation was crucial in shifting the long-term trend of the yen.

The Government’s Intervention Test

The government faced a challenge and eventually intervened later that year when USD/JPY briefly surged above 160, spending roughly ¥9 trillion to support the currency. This, combined with the BoJ’s rate hike to 0.25% in October 2025, demonstrated a renewed commitment to combat severe yen weakness. These actions confirmed that verbal warnings would be followed by real policy measures. For traders today, this history means that yen volatility now works in both directions. Implied volatility for USD/JPY options, which soared to over 12% during the 2025 intervention periods, indicates that protection against sudden yen appreciation can become expensive quickly. Therefore, traders might want to consider acquiring long-dated JPY call options as a hedge against unexpected moves by authorities. A more straightforward strategy is to prepare for a gradual decline in USD/JPY as the BoJ continues its policy normalization. With Japan’s core inflation holding steady at 2.4%, pressure for another rate hike remains. Bearish put spreads on USD/JPY can be a cost-effective way to profit from any move back toward the 145-150 range in the coming months. The upcoming spring “shunto” wage negotiations will be a crucial factor for the BoJ. Last year’s wage growth, exceeding 3.5%, was a significant reason for the rate hikes. If this year’s negotiations yield similar results, the Bank of Japan may feel compelled to act again, making bets on renewed yen weakness highly risky. Create your live VT Markets account and start trading now.

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