The Influence of BOJ Policies

The value of the Japanese Yen is affected by the policies of the Bank of Japan (BoJ), Japan’s economic performance, and differences in bond yields. The BoJ has kept a very relaxed monetary policy for a long time, which has led to the Yen losing value. Any shift in this policy, along with changes in interest rates from other central banks, impacts the Yen’s value. In the last ten years, the BoJ’s approach has increased the difference in bond yields between Japan and the US, making the Dollar stronger than the Yen. Recently, changes in BoJ policy and adjustments in global interest rates are starting to reduce this gap. During times of market stress, many investors prefer the Yen for its perceived stability, which can boost its value against riskier currencies. The USD/JPY is currently trading high at around 158.10 and is facing conflicting factors. On one hand, potential snap elections in Japan are weakening the Yen, pushing this currency pair higher. On the other hand, tensions between the US government and the Federal Reserve are causing headwinds for the Dollar.

The Impact of US Political Risk

We need to be very careful at these levels, as similar situations have led to intervention in the past. Japanese authorities intervened to support the Yen when it dropped below 150 in 2022 and again in 2024. Buying protective put options to guard against a sudden drop could be a wise move. Right now, we should focus on the US Consumer Price Index data for December 2025. Recent inflation numbers have shown core inflation staying above 3%, making this report crucial for the Fed’s future decisions. If the numbers are higher than expected, the exchange rate could rise towards 160, while a lower number might cause a sell-off. The political situation in Japan is keeping the Yen weak for now, which supports the currency pair. However, this is likely a temporary issue that could change quickly after any elections. This uncertainty might keep volatility high, making short-term strategies like straddles a good option for capturing significant price movements in either direction. Create your live VT Markets account and start trading now.

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