Insights 
VT 
Japanese Chief Cabinet Secretary Minoru Kihara emphasised the need for currencies to move in a stable manner reflecting economic fundamentals. He refrained from commenting on forex levels but stated that excessive and disorderly moves in the FX market are being closely monitored.
The USD/JPY pair traded 0.08% higher on the day at 153.00. The Japanese Yen’s value is influenced by the performance of Japan’s economy, the Bank of Japan’s policies, and the differential between Japanese and US bond yields.
The Bank Of Japan’s Influence
The Bank of Japan’s decisions are key for Yen valuation, as it sometimes intervenes in currency markets to lower the Yen’s value. Its ultra-loose monetary policy from 2013 to 2024 led to Yen depreciation. However, the gradual unwinding of this policy has recently supported the Yen.
The divergence in monetary policy between Japan and the US, especially regarding bond yields, has often favoured the US Dollar. The Bank of Japan’s steps to end ultra-loose policy, alongside interest-rate cuts by other major central banks, are narrowing this differential.
In turbulent times, the Japanese Yen strengthens, as it is considered a safe-haven investment. This makes it appealing for traders seeking reliability and stability during market stress.
These comments are a clear warning that officials are getting very uncomfortable with the yen’s weakness. With the dollar-yen rate now at 153, we are in a zone where the Ministry of Finance has historically intervened to strengthen its currency. Traders should see this as a final verbal signal before potential direct action.
Interest Rate Disparity
The core issue is the persistent gap in interest rates, which continues to favor the dollar. The Bank of Japan has only raised its policy rate by a total of 25 basis points since its major policy shift in 2024, a pace that has underwhelmed the market. Meanwhile, the US Federal Reserve’s recent pause on rate cuts, due to September 2025 inflation data coming in at 2.8%, has kept US bond yields relatively high.
We must remember the lessons from past interventions, especially the large-scale yen buying that occurred in late 2022. Similar strong language was used back in 2024 when the exchange rate breached the 152 level, demonstrating that these warnings often precede action. History suggests authorities have a low tolerance for rapid, one-sided moves like the one we are seeing now.
For derivative traders, this environment means preparing for a sudden spike in volatility. One-month implied volatility for USD/JPY has already climbed to over 12%, showing deep market nervousness about a surprise intervention. Hedging long dollar positions with options, such as buying JPY calls, is becoming a more prudent strategy in the coming weeks.
Looking ahead, we must focus on Japan’s upcoming inflation reports. The latest core inflation reading for September 2025 remained at 2.3%, staying above the Bank of Japan’s 2% target. Continued high inflation adds pressure on the central bank to tighten policy more assertively, which could provide some fundamental support for the yen.
