Insights 
VT 
In 2013, the BoJ implemented an ultra-loose monetary policy to stimulate the economy through Quantitative and Qualitative Easing (QQE), involving asset purchases to provide liquidity. Negative interest rates and yield control on 10-year government bonds were introduced in 2016. However, in March 2024, the BoJ raised interest rates, moving away from this policy approach.
Impact of Monetary Policy Changes
This approach initially led to Yen depreciation, heightened by the BoJ’s divergence from other central banks’ interest rate hikes. The weakening of the Yen and global energy price increases drove inflation beyond the BoJ’s target. Increased salaries also played a role, prompting the BoJ to reconsider its policy direction in 2024.
The government’s statement simply reminds us that the Bank of Japan (BoJ) remains focused on its inflation target. Given that today’s USD/JPY is trading near 151.94, this calm language does little to ease the tension in the market. We should therefore see this as a signal that policy will remain steady for now, but the government is watching the yen’s value very closely.
Recent data shows Japan’s core inflation for September 2025 came in at 2.1%, marking the third consecutive month of cooling price pressures. This puts the BoJ in a difficult position as inflation is now hovering right around its target, reducing the domestic pressure for further interest rate hikes. This inaction contrasts with the U.S. Federal Reserve, which has held its key rate above 4.5% for over a year, maintaining a huge yield advantage for the dollar.
Market Speculations and Strategies
We must remember the major currency interventions that occurred back in 2022 and again in the spring of 2024 when the yen weakened past these critical levels. The 152.00 level for USD/JPY has historically been a line in the sand for the Ministry of Finance. The current quiet period could precede a sudden and sharp move if that level is breached decisively.
For derivative traders, this environment suggests that betting on a spike in volatility is more prudent than taking a clear directional view. The high risk of intervention makes buying short-term yen call options a compelling strategy to profit from a potential sharp appreciation of the yen. Implied volatility on USD/JPY options is likely to climb in the coming weeks as the market prices in this increasing risk.
The persistent interest rate gap means the carry trade, where investors borrow cheap yen to buy high-yielding dollars, will continue to put underlying pressure on the Japanese currency. This fundamental force will keep testing the resolve of Japanese authorities. We should not expect the yen to strengthen meaningfully without either a policy shift from the BoJ or direct market intervention.
