Japan’s Economics Minister Minoru Kiuchi has recognized that rising inflation is affecting consumer spending. He noted that a weak yen is driving up prices because of higher import costs, and the government is considering steps to ease these impacts. The goal is to achieve wage growth that exceeds inflation. Currently, the USD/JPY exchange rate is trending 0.20% higher at 154.35.

Influence of Economic Factors on The Yen

The Japanese Yen is widely traded, and its value reflects Japan’s economic performance. The Bank of Japan’s policies, differences in bond yields, and market sentiment all affect its value. The actions of the Bank of Japan significantly impact the Yen. Recent policy changes have helped support the currency by reducing interest rate gaps. The Yen is considered a safe haven for investors. It tends to gain value during market turmoil because people see it as stable. With the USD/JPY rate around 154.35, government worries about a weak yen are increasing. The wide gap between the US Federal Reserve’s interest rate, which is currently 4.25%, and the Bank of Japan’s 0.10% rate is a key factor. This difference makes holding US dollars much more attractive than yen.

Monetary Policy and Currency Intervention

The Minister’s aim for wage growth to outpace inflation is falling short, putting pressure on the Bank of Japan. As of last month, October 2025, nationwide core inflation stood at 2.9%, while wage growth was only 2.5%. This ongoing gap is squeezing consumers and may prompt the central bank to act more quickly than anticipated. The Bank of Japan ended its negative interest rate policy in March 2024. However, it has been hesitant to make further changes. This caution is why the yen remains weak despite earlier adjustments. Derivative traders should closely monitor any shift in tone from BoJ officials in the coming weeks. Given the current levels, we are in a position where the Ministry of Finance may intervene directly in the currency market. They previously stepped in to buy yen in the fall of 2022 and again in the spring of 2024 when the dollar reached similar levels. A significant move toward 155 could put short-yen positions at risk of a sudden reversal. This creates a tricky situation, as the interest rate carry trade still favors betting against the yen. However, the possibility of intervention adds considerable risk to maintaining these positions. We believe that focusing on options markets is the best approach, as implied volatility for USD/JPY options is likely to increase. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now