In 2013, the Bank of Japan (BoJ) started a very loose monetary policy called Quantitative and Qualitative Easing (QQE) to boost the economy. This included asset purchases to increase liquidity. In 2016, the BoJ added negative interest rates and controlled yields on 10-year government bonds. However, in March 2024, the BoJ changed course and raised interest rates.

Impact of Monetary Policy Changes

These policies initially caused the Yen to drop in value, especially as the BoJ struggled to keep up with other central banks raising their rates. The Yen’s weakness and rising global energy prices caused inflation to exceed the BoJ’s targets. Higher wages also influenced this situation, leading the BoJ to rethink its approach in 2024. The government’s recent statement reminds us that the BoJ is still focused on its inflation target. Currently, the USD/JPY exchange rate is around 151.94. This cautious language does not alleviate market concerns. It signals that the policy will likely stay the same for now, but the government is closely monitoring the Yen’s value. Recent data from September 2025 shows Japan’s core inflation at 2.1%, marking three months of easing price pressures. This situation puts the BoJ in a tough spot, as inflation is now close to its target, reducing the pressure to raise interest rates. In contrast, the U.S. Federal Reserve has maintained its key rate above 4.5% for over a year, creating a large yield advantage for the dollar.

Market Speculations and Strategies

We should remember the major currency interventions in 2022 and again in spring 2024 when the Yen fell below key threshold levels. Historically, the 152.00 mark for USD/JPY has been crucial for Japan’s Ministry of Finance. This quiet period may precede significant movement if that level is decisively crossed. For traders using derivatives, this situation suggests that preparing for increased volatility is wiser than taking a specific directional stance. The risk of intervention makes buying short-term Yen call options an attractive strategy to profit from a potential rapid increase in Yen value. Implied volatility on USD/JPY options is expected to rise in the coming weeks as the market adjusts to this heightened risk. The ongoing interest rate gap means the carry trade—where investors borrow inexpensive Yen to buy high-yielding dollars—will continue to exert pressure on the Japanese currency. This fundamental dynamic will continuously test the resolve of Japanese authorities. We shouldn’t expect the Yen to strengthen significantly without a change in BoJ policy or direct market intervention. Create your live VT Markets account and start trading now.

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