Japan’s policy setting has shifted after Prime Minister Sanae Takaichi achieved a supermajority. HSBC links this to the outlook for the Japanese yen and USD/JPY.
USD/JPY traded near 158–162 during April–July 2024. The focus is whether Japan’s Ministry of Finance will step up verbal warnings, and whether coordinated action with US authorities is raised again.
Intervention Limits And Fiscal Concerns
Foreign exchange intervention does not fix concerns about Japan’s fiscal sustainability. It may still lead some market participants to reduce short yen positions to limit volatility.
HSBC says intervention can create time for other steps. These include tax changes to Nippon individual savings accounts to favour domestic assets, rules or incentives for pension funds and insurers to raise FX hedging or switch towards domestic assets, possible Bank of Japan rate rises, and tighter fiscal policy.
A lasting yen rebound would likely need a more active Bank of Japan, clear fiscal discipline, and measures that support capital flows. HSBC expects USD/JPY to stay choppy but elevated in the near term, then ease more steadily in 2H26.
Given Prime Minister Takaichi’s supermajority, we see a government with the power to enact significant policy, yet USD/JPY continues to test levels not seen since last year. With the pair currently trading around 157.80, the market is on high alert. The fundamental dynamic of a strong US economy, reinforced by last week’s robust jobs report showing 215,000 new jobs in January 2026, continues to support the dollar.
Trading And Hedging Around MoF Risk
We are approaching the 158-162 zone where the Ministry of Finance (MoF) intervened heavily back in the spring and summer of 2024. Traders should be buying short-dated, out-of-the-money USD/JPY puts as a cost-effective hedge against a sudden, sharp drop caused by intervention. These actions buy time but don’t solve the core issue, which we saw throughout 2025 as the yen remained weak despite minor policy tweaks.
While intervention is a risk, the underlying interest rate differential between the US and Japan remains wide, suggesting any yen strength will be temporary. Selling downside puts with strikes below 155 could be a viable strategy to collect premium, capitalizing on the view that the pair will remain elevated. This reflects the belief that fundamental support for the dollar will limit the extent of any pullback.
The choppy environment also makes range-trading strategies like collars attractive. By buying a protective put and simultaneously selling a call, traders can define a clear risk-reward profile for the coming weeks. This approach is well-suited for a market that is expected to be volatile but ultimately contained by MoF vigilance on the upside and strong US data on the downside.
The real turning point for a sustained yen recovery will be a more aggressive Bank of Japan (BoJ). With Japan’s core inflation for January 2026 coming in at 2.8%, pressure is mounting on the BoJ to move beyond the token rate adjustments of 2025. Until we see a clear commitment to tightening, the path of least resistance for USD/JPY will remain upward, albeit with significant volatility.
