The USD/JPY pair rises to about 155.85 early on Wednesday. Political uncertainty in Japan is making the Japanese Yen weaker against the US Dollar. The Bureau of Labor Statistics will postpone the January employment report due to a partial government shutdown.

Japan Faces Increased Market Instability

Japan is getting ready for more market instability ahead of Sunday’s snap general election. Prime Minister Sanae Takaichi’s fiscal measures, like a two-year suspension of the food consumption tax, put further pressure on the Yen. There’s speculation about state interventions as Japan’s Finance Minister works with US officials. Changes in US Federal Reserve leadership could strengthen the US Dollar. President Donald Trump has nominated Kevin Warsh for Fed Chairman. Warsh is likely to focus on reducing the balance sheet, which might slow interest rate cuts. The Japanese Yen is important globally, influenced by the Japanese economy’s performance. The Bank of Japan affects the Yen’s value through its monetary policies. The Yen usually performs well in risk-averse environments, being seen as a safe currency. Ten years of differing policies have widened the gap between Japanese and US bond yields. A potential shift in the Bank of Japan’s approach in 2024 may close this gap, affecting the Yen’s strength against the US Dollar. In times of uncertainty, the Yen tends to rise because of its safe-haven status. Reflecting on political uncertainty in late 2025, the USD/JPY reached 155.50 before Japan’s snap election. This upward trend has carried on, with the pair now trading at about 158.20 as we approach February 2026. The market remains focused on the policy differences between the US and Japan.

Prime Minister Takaichi’s Inflationary Policies

Prime Minister Takaichi’s inflationary policies, such as suspending the food consumption tax, are driving inflation, shown by Japan’s national Core CPI rising to 2.5% year-over-year in the latest January 2026 report. This ongoing inflation, coupled with minimal interest rate hikes from the Bank of Japan, is weakening the Yen. The BoJ has only raised rates slightly to 0.10%, not enough to change the trend. In the US, Kevin Warsh’s confirmation as Fed Chair has confirmed a hawkish outlook, as expected last year. The Federal Reserve has kept the Fed funds rate steady at 5.25%, citing persistent core services inflation at 3.8% for December 2025. This strong US policy keeps the Dollar appealing. This situation has widened the yield gap between US and Japanese 10-year government bonds to over 420 basis points, making carry trades very profitable. Institutional investors continue to borrow Yen to invest in higher-yielding Dollar assets. The case for a strong Dollar against the Yen is now even stronger than it was in late 2025. We recall the intervention warnings from Finance Minister Katayama last year. Although there was a sharp drop to 153 in November 2025, the market quickly rebounded. This indicates that verbal warnings and minor interventions can’t reverse the strong trend driven by interest rates. Traders should see any dips caused by interventions as potential buying opportunities. Given this ongoing momentum, purchasing call options on USD/JPY allows traders to benefit from potential gains while managing risk. A move toward the psychological level of 160.00 seems likely in the coming weeks. Options trading lets participants profit from this trend without fully exposing themselves to the sharp short-term volatility that another unexpected intervention could cause. Create your live VT Markets account and start trading now.

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