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The Japanese Yen experienced pressure after PM Takaichi announced a new economic growth strategy for the next summer. USD/JPY was last observed at 154.53, according to OCBC’s analysts Frances Cheung and Christopher Wong.
Government’s Economic Strategy
The government aims to increase tax revenue without raising tax rates and boost private-public investments. Factors such as delayed Bank of Japan policy normalization, increased fiscal burden, higher social and defense spending, and potential for early snap elections could exert downward pressure on JPY. Takaichi enjoys a high approval rating of 74%.
Finance Minister Katayama expressed urgency over foreign exchange moves, helping to mitigate some Yen losses. While verbal intervention might slow the Yen’s decline, it is unlikely to reverse market trends. Closer monitoring of intervention strategies by the new Finance Minister is suggested, as Yen bears remain cautious.
For a decrease in USD/JPY, a weaker USD and a more aggressive stance from the Bank of Japan would be necessary. Current daily momentum shows mild bullish tendencies, and RSI levels are nearing overbought conditions. Key support levels are identified at 153.30, as well as between 151.60 and 151.80.
The new government’s growth strategy is putting downward pressure on the yen, pushing USD/JPY towards 154.53. Prime Minister Takaichi’s plan to boost the economy without raising taxes suggests more government spending and a delay in any policy tightening from the Bank of Japan. We see this as fundamentally bearish for the Japanese yen in the near term.
Interest Rate Gap and Market Responses
The key fundamental driver remains the wide interest rate gap between the U.S. and Japan. With the latest data showing the U.S. 10-year Treasury yield holding firm around 4.6% and Japanese 10-year government bonds barely yielding 1.1%, the carry trade favoring the dollar is still very compelling. October 2025’s inflation figures for Japan, which came in at a stubborn 2.9%, have put the Bank of Japan in a difficult position, but so far they have not signaled any urgent need to hike rates.
Finance Minister Katayama’s verbal warnings about watching currency moves with a “high sense of urgency” should not be ignored. We remember the significant yen-buying interventions that occurred in late 2022 and again through mid-2024 when the Ministry of Finance stepped in to defend the currency. While words alone may only slow the ascent of USD/JPY, the threat of actual intervention will make traders cautious about pushing the pair too aggressively higher from here.
Given the mild bullish momentum, traders could consider buying call options on USD/JPY to capitalize on further upside potential toward the 155 level. This strategy allows for participation in gains while defining risk if the Ministry of Finance were to suddenly intervene. The high approval rating for the new Prime Minister suggests her growth-focused policies will have strong support, favoring a weaker yen.
To hedge against the significant risk of a sharp reversal caused by intervention, purchasing put options is a prudent strategy. Such a move would provide downside protection if the verbal warnings escalate into action, potentially pushing USD/JPY back towards support at 153.30. The conflicting signals between the government’s growth agenda and the finance ministry’s warnings are likely to increase volatility, which could also make volatility-based strategies attractive.
We must also watch the U.S. dollar side of the equation, as a significant downturn in USD/JPY would likely require a weaker greenback. The slightly softer U.S. jobs report from last Friday has tempered expectations for any further rate hikes from the Federal Reserve. This has likely moderated the pair’s rise and explains why momentum is not more aggressive.
