The Japanese Yen has seen strong gains over the last two days, reaching its highest point since November 14. This rise is mainly due to a weaker US Dollar. The Yen’s strength follows recent rate checks by Japan’s Ministry of Finance and the New York Federal Reserve, along with a warning from Japan’s Prime Minister about speculative market actions. The Bank of Japan’s bullish outlook and ongoing global uncertainties make the Yen a safe choice, especially as the US Dollar struggles. The USD has dropped to its lowest level since September 2025 because of expectations for more rate cuts from the US Federal Reserve.

Prime Minister’s Statement on Currency Intervention

Japan’s Prime Minister confirmed the nation’s readiness to respond to speculative moves in the market. This comes after reports of rate checks on the USD/JPY exchange rate, signaling possible intervention. The Bank of Japan kept short-term interest rates at 0.75% and updated its forecasts for the economy and inflation. Meanwhile, US President Trump’s proposed tariffs have reignited the ‘Sell America’ trade. Technical analysis suggests that the USD/JPY pair might drop if it falls below the 154.00 support level. Key indicators show increasing bearish pressure, but a recovery is possible if it stays above the 100-day Simple Moving Average. Warnings from Japanese officials about potential intervention are becoming a reality. The strong stance of the Bank of Japan, combined with a Federal Reserve likely to ease further, supports the Yen’s rise. This fundamental change is the main factor driving the current market dynamics.

Widest Policy Divergence Between US and Japan

The gap in policies between the US and Japan is now wider than it has been in years. The BoJ has kept rates steady at 0.75%, while data indicates a 70% chance of another 25-basis-point rate cut by the US Federal Reserve by June 2026. This contrast is fueling the ‘Sell America’ trade and putting pressure on the US Dollar. From a trading standpoint, the critical break below the 154.00 level and the 100-day moving average in December proved significant. This change has made long positions in the Yen more appealing. We’ve seen one-month risk reversals for USD/JPY shift to favor JPY calls, a big change from the sentiment in autumn 2025. Implied volatility in USD/JPY options has increased and is expected to remain high in the coming weeks. One-month implied volatility is around 12%, notably higher than the under 9% levels we saw for much of last year. This suggests that option strategies designed for sharp moves could be beneficial. Traders should consider positioning for more Yen strength, even if it’s bumpy. Buying out-of-the-money puts on USD/JPY can be a way to profit from a drop toward the 150.00 level. For those looking to generate income, selling call spreads with strike prices above the previous 154.00 support level could be an effective strategy to take advantage of increased volatility. Create your live VT Markets account and start trading now.

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