The Japanese Yen is strong, hitting its highest value since mid-November against a weakening US Dollar. This increase follows warnings from Japan’s Prime Minister about speculative activities and recent rate checks by Japan’s Ministry of Finance and the New York Federal Reserve. There are many predictions that the US and Japan might intervene together to stabilize the Yen. The Bank of Japan’s careful approach, along with global uncertainties, is nurturing the Yen. Meanwhile, the US Dollar is falling due to the ‘Sell America’ trend and expectations that the US Federal Reserve will lower rates again. The Dollar has dropped to its lowest point since September 2025. The different expectations between Japan and the US are boosting the Yen’s strength compared to the Dollar.

Japanese Intervention Speculation

Prime Minister Takaichi’s remarks have fueled speculation about intervention, as officials may soon enter the market. The Bank of Japan has kept rates at 0.75% and is open to adjusting borrowing costs. Technical indicators suggest possible bearish pressure on the USD/JPY pair. If it falls below 154.00, it could indicate a larger pullback, while staying above that level supports a positive outlook. We are now looking at upcoming US Durable Goods data and the Federal Open Market Committee meeting to assess future rate changes. The long-standing view of a weak Yen has shifted, and we need to adjust our strategies. The reliable carry trade of borrowing inexpensive Yen to buy high-yielding Dollars is rapidly changing. This is not just a temporary shift; it’s a structural change driven by new central bank policies. This change is supported by strong data, with US Core PCE inflation cooling to 2.1% in December 2025, raising bets on Fed rate cuts. Meanwhile, Japan’s core inflation has stayed above the Bank of Japan’s 2% target for more than 20 months, recently recorded at 2.6%. The shrinking interest rate gap between the US and Japan will keep pressuring the Dollar against the Yen.

Currency Strategy Adjustments

We now need to view the official warnings of intervention as a strong limit on the USD/JPY pair. Similar coordinated messages in 2022 led to direct market actions, suggesting officials are ready to act again to support their currency. This means selling during any significant rallies is the more sensible strategy for now. Given how quickly the recent drop happened, outright shorting the market carries the risk of a sharp rebound, especially since the Relative Strength Index is near oversold levels. We think buying USD/JPY put options is a more cautious strategy for the coming weeks. This approach allows us to take advantage of further Yen strength while keeping our maximum risk defined, should the market reverse temporarily. The Federal Reserve meeting this week is crucial, as a dovish tone could lead the pair to drop even further. Traders should be ready for increased volatility around this announcement. Using options lets us prepare for this expected movement while managing the risks of a surprise statement from the central bank. Create your live VT Markets account and start trading now.

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