Toyoo Gyoten, a former Japanese foreign exchange official, emphasised concerns about inflation due to the weak yen. Japan\u2019s interest rates are notably low, contributing to the yen’s decline.<\/p>\n
Gyoten stated that if the current trend continues, it could lead to increased inflation. Historically, the yen remains weak, and he sees potential for it to strengthen considerably.<\/p>\n
Gyoten played a key role in the 1985 Plaza Accord and served as director-general of the International Finance Bureau at Japan’s Ministry of Finance. He opposed Japan’s decision to sell the yen in 2010, marking a rare intervention since 2004.<\/p>\n
It’s a matter of fact that our interest rates in Japan have been simply too low, and this is undeniably contributing to the yen’s weakness. With USD\/JPY trading near 168.50 this week, the pressure is building. If this continues, it could accelerate inflation, and we believe the Bank of Japan really needs to take this into consideration.<\/p>\n
This prolonged weakness could seriously fuel import costs and broader inflation, which we’ve seen stay stubbornly above target. The latest national core CPI data released for August 2025 showed a 2.8% year-on-year increase, marking the sixth consecutive month it has been well above the BOJ\u2019s 2% goal. This persistent inflation puts the central bank in a very difficult position.<\/p>\n
For derivative traders, this suggests a growing possibility of a sharp policy shift or even direct intervention. We should be looking at buying USD\/JPY put options that would profit from a sudden strengthening of the yen, perhaps targeting a move back towards the 160 level in the next month or two. The current environment makes holding long yen positions via options an increasingly attractive hedge against a surprise BOJ pivot.<\/p>\n
From a historical perspective, the yen is still far too weak, and there’s no fundamental reason it shouldn’t strengthen significantly from here. We only have to look back to the intervention in 2010 when USD\/JPY was near 83, or even the levels around 115 we saw before the global hiking cycle began in 2022, to understand the potential for a major correction. The risk of being short yen at these levels is growing by the day.<\/p>\n
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