Japan’s Finance Minister, Satsuki Katayama, has announced that the government is considering all options, including direct intervention in the currency market, to tackle the recent weakness of the Japanese Yen. Currently, the USD/JPY pair has dropped by 0.24%, now at 158.25. The value of the Japanese Yen largely depends on factors like Japan’s economic performance and the monetary policies of the Bank of Japan (BoJ). Additionally, it is influenced by the differences in bond yields between Japan and the US, as well as traders’ risk appetite.

Role of The Bank of Japan

The Bank of Japan (BoJ) manages currency control and sometimes intervenes in the currency markets to lower the Yen’s value. The BoJ has maintained an ultra-loose monetary policy from 2013 to 2024, which led to a weaker Yen. Recently, a shift away from this policy has started to support the Yen. The widening gap between Japanese and US bond yields is due to their different monetary policies. However, recent changes by the BoJ and rate cuts in other countries are starting to close this gap. The Yen is often viewed as a safe investment, attracting more buyers during market uncertainty, which can increase its value against riskier currencies. The Finance Minister’s remarks about taking “bold action” indicate the government is concerned about the Yen’s current weakness. With USD/JPY at 158.25, there’s a strong chance of direct intervention to bolster the Yen, similar to efforts made in late 2022 and again when the pair fell below 155 in October 2024. This situation poses a significant short-term risk for traders holding long USD/JPY positions. The main issue continues to be the interest rate difference between the US and Japan. Currently, the US 10-year Treasury yield is about 4.1%, while Japan’s 10-year government bond yield is only 1.1%. This wide gap remains attractive for carry traders and has been a key factor behind the Yen’s weakness in 2025, even as the BoJ slowly moves away from its ultra-loose policy.

Impact on Derivative Traders

For derivative traders, the government’s warning raises the expected volatility for USD/JPY in the coming weeks. The implied volatility for one-month options has surged to over 12%, compared to an average of 9% in the last quarter of 2025. It might be wise to consider buying JPY calls or USD/JPY puts as a hedge against or a way to profit from a rapid drop triggered by intervention. Keep in mind that verbal intervention is much simpler than actual market actions, which could cost Japan billions in foreign reserves. Japan’s core inflation, which was reported at 2.3% for December 2025, does not warrant aggressive rate hikes from the BoJ just yet. Additionally, with global equity markets remaining stable, there is limited safe-haven demand to support the Yen naturally. Create your live VT Markets account and start trading now.

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