Japan’s Prime Minister aims to strengthen the economy and increase tax revenue without raising taxes. The government may adjust its primary balance target to evaluate it over several years rather than just annually. The current exchange rate is USD/JPY at 154.83, increasing by 0.07%.

Factors Influencing The Yen

The value of the Japanese Yen depends on several factors, including Japan’s economy, the Bank of Japan’s policies, differences in bond yields between Japan and the US, and traders’ risk sentiment. The Bank of Japan sometimes intervenes in the currency markets to affect the Yen’s value, though it doesn’t do so frequently. From 2013 to 2024, the Yen weakened as the Bank maintained an ultra-loose monetary policy, unlike other central banks. The recent shift towards tightening has helped support the Yen’s value. Historically, the yield difference between Japanese and US bonds has favored the US Dollar due to Japan’s low-interest rates. However, the shift in 2024 and interest rate cuts from other central banks are closing this gap. During market stress, the Yen tends to strengthen because it is viewed as a safe-haven currency. This perception makes the Yen more attractive in uncertain times.

Government’s Fiscal and Monetary Policies

The Prime Minister’s statements suggest that fiscal policy will focus on growth rather than immediate budget cuts, indicating that the government likely won’t aid the Yen’s strength in the short term. This situation keeps pressure on the currency. This contrasts with the Bank of Japan’s gradual monetary tightening that has been ongoing since 2024. Japan’s national core CPI for October 2025 was 2.7%, exceeding the Bank’s 2% target for the 19th consecutive month, justifying continued tightening. The mismatch between government and central bank policies contributes to market uncertainty. Additionally, the interest rate gap that has weakened the Yen is becoming smaller. The difference between US 10-year Treasury bonds and Japanese 10-year government bonds (JGBs) has narrowed to 310 basis points, down from over 450 in late 2023. This trend makes borrowing Yen to invest in US assets less appealing. For derivative traders, this indicates a need to prepare for higher volatility rather than a clear direction. The USD/JPY remains at 154.83, with implied volatility on 3-month options rising to 11.2% as the market processes these conflicting dynamics. Strategies like long straddles, which profit from significant price moves in either direction, are worth considering. We should also be aware of the risk of direct market intervention, especially if the currency continues to weaken. Recall that the Ministry of Finance intervened decisively when the pair neared 160 in 2024, causing a swift reversal. This history creates a psychological barrier around the USD/JPY rate, making it risky to bet heavily against the Yen at current levels. Create your live VT Markets account and start trading now.

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