Japan’s economy minister, Minoru Kiuchi, emphasised the need for early parliamentary passage of the fiscal budget for 2026. He stated that the government is committed to a responsible fiscal policy without engaging in reckless spending. <\/p>\n
Various factors such as forex rates and long-term interest rates, not just fiscal policy, influence market developments. The sustainability of wage growth will be crucial to avoiding a return to deflation, although Japan has not yet exited deflation. <\/p>\n
As of writing, the USD\/JPY pair rose by 0.45%, reaching 158.90. The Japanese Yen is influenced by the Bank of Japan’s policy and the bond yield differential with the US, among other factors. <\/p>\n
The Bank of Japan’s interventions in currency markets can impact the Yen, often aiming to lower its value for economic reasons. The ongoing shift from an ultra-loose policy by the Bank of Japan has started to support the Yen. <\/p>\n
The differential between Japanese and US bond yields has historically affected the Yen, with recent policies narrowing this gap. The Yen is also considered a safe-haven investment, attracting more investment during times of market stress.<\/p>\n
The government\u2019s message signals a cautious approach, emphasizing fiscal discipline while still fighting the risk of deflation. As of January 13, 2026, we see that officials are not yet ready to declare a victory over falling prices, which tells us the Bank of Japan will likely be very slow to raise interest rates further. This reinforces the core driver behind the weak yen.<\/p>\n
This policy stance keeps the interest rate difference between the US and Japan significant. We are currently seeing the US 10-year Treasury yield holding near 3.8%, while the Japanese 10-year government bond struggles to stay above 1.2%, maintaining a spread that heavily favors the dollar. Until we see a substantial shift from the Bank of Japan, this yield gap will continue to put pressure on the yen.<\/p>\n
For traders, this environment suggests that betting on yen strength is a risky move in the short term. With USD\/JPY pushing 158.90, derivative plays that benefit from the pair either staying high or drifting toward the 160 level look attractive. This could involve buying near-term USD\/JPY call options or structuring call spreads to limit costs.<\/p>\n
However, we must remember what happened back in late 2024 when the currency pair last breached the 160 mark, triggering direct market intervention from the Ministry of Finance. The risk of a sudden, sharp reversal orchestrated by officials is now considerably higher. This makes selling yen outright a dangerous proposition.<\/p>\n
Given the risk of both continued yen weakness and sudden government intervention, volatility is the most certain trade. Implied volatility on yen options has crept up to a six-month high of 12.5%, suggesting the market is pricing in a big move. Strategies like buying straddles or strangles, which profit from a large price swing in either direction, should be considered for the coming weeks.<\/p>\n
The minister\u2019s focus on sustainable wage growth points to the next major catalyst. We will be closely watching the preliminary results from the “Shunto” spring wage negotiations, due in mid-February, for any sign of strength. Another year of wage gains below inflation, similar to what we saw in 2025, would give the Bank of Japan every reason to maintain its cautious stance.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Japan stresses responsible fiscal policy; Yen influenced by BOJ shifts, wage growth crucial to avoid deflation.<\/p>\n","protected":false},"author":62,"featured_media":17047,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-38983","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/38983","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=38983"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/38983\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17047"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=38983"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=38983"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=38983"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}