Japanese Chief Cabinet Secretary Minoru Kihara stressed the importance of stable currency movements that reflect economic fundamentals. While he did not comment on foreign exchange levels, he indicated that they are closely watching excessive and chaotic movements in the FX market. The USD/JPY pair increased by 0.08% today, reaching 153.00. The strength of the Japanese Yen depends on Japan’s economic performance, the Bank of Japan’s policies, and the differences between Japanese and US bond yields.

The Bank of Japan’s Impact

The Bank of Japan plays a crucial role in determining the Yen’s value. It sometimes intervenes in the currency markets to reduce the Yen’s value. Its very loose monetary policy from 2013 to 2024 caused the Yen to weaken, but the recent gradual shift away from this policy has helped strengthen it. The difference in monetary policies between Japan and the US, particularly regarding bond yields, often benefits the US Dollar. As the Bank of Japan moves towards ending its loose policy and other major central banks cut rates, this gap is beginning to close. During uncertain times, the Japanese Yen tends to gain strength because it is viewed as a safe-haven investment. Traders seeking stability often turn to the Yen when markets become stressful. Kihara’s remarks indicate that officials are increasingly concerned about the Yen’s weakness. With the dollar-yen rate at 153, we are in a range where the Ministry of Finance typically intervenes to strengthen the currency. Traders should consider this a final warning before possible direct action.

Interest Rate Differences

A key issue is the ongoing gap in interest rates, which favors the dollar. The Bank of Japan has only raised its policy rate by 25 basis points since its major shift in 2024, a pace that hasn’t impressed markets. Meanwhile, the US Federal Reserve’s recent pause on rate cuts, due to inflation data from September 2025 at 2.8%, has kept US bond yields relatively high. We should remember lessons from past interventions, especially the significant Yen buying in late 2022. Similar strong warnings were made in 2024 when the exchange rate crossed the 152 level, showing that these signals often precede action. History indicates that authorities are not tolerant of rapid and one-sided movements like the current situation. For derivative traders, this environment calls for readiness for a sudden spike in volatility. One-month implied volatility for USD/JPY has risen above 12%, indicating market anxiety about a potential surprise intervention. Hedging long dollar positions by buying JPY call options is becoming a more cautious strategy in the weeks ahead. Looking forward, attention should be on Japan’s upcoming inflation reports. The latest core inflation for September 2025 stayed at 2.3%, remaining above the Bank of Japan’s target of 2%. Persistently high inflation could pressure the central bank to tighten its policy more decisively, potentially supporting the Yen. Create your live VT Markets account and start trading now.

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