Japan’s Economics Minister Minoru Kiuchi emphasised the importance of stable foreign exchange (FX) moves that reflect economic fundamentals. He plans to assess the impact of FX changes on Japan’s economy, noting that a weak yen can increase domestic inflation by raising import costs, which reduces purchasing power for households and firms.

Despite the benefits of a weak yen for exporters and capital expenditure, stability in FX moves is necessary. The government intends to address inflation-related living costs with an economic package. Currently, the USD/JPY is trading 0.27% lower at 152.47.

The Japanese Yens Value

The Japanese Yen’s value is influenced by Japan’s economic performance, Bank of Japan policy, bond yield differentials, and market risk sentiment. The Bank of Japan’s approach to currency control significantly affects the Yen, often intervening in currency markets cautiously.

The BoJ’s former ultra-loose monetary policy widened yield differentials with other central banks, benefiting the US Dollar. However, the recent shift to abandon this policy is now supporting the Yen. As a safe-haven currency, the Japanese Yen attracts investments during market stress, strengthening its value against riskier currencies.

The Economics Minister’s focus on stability is a clear signal to the market. We see these comments as a form of verbal intervention, designed to make traders cautious about pushing the dollar much higher against the yen. This increases the two-way risk in the market for the weeks ahead.

With the USD/JPY hovering near 152.50, these warnings carry weight, especially as Japan’s core inflation for September 2025 was a persistent 2.7%. Furthermore, the US-Japan 10-year yield differential remains wide at over 400 basis points, providing a fundamental reason for continued yen weakness. This data validates the minister’s concerns about rising import costs hurting households.

Strategies for Market Uncertainty

We remember the sharp interventions back in 2022 and 2024 when the yen weakened past similar levels. The market has a memory of these sudden, multi-yen moves that occurred after similar official warnings. This historical precedent suggests the Ministry of Finance could act swiftly if they feel the currency’s slide becomes disorderly.

Given this heightened uncertainty, we should consider strategies that benefit from a large price move in either direction. Buying volatility through options, such as a long straddle on USD/JPY, could be a prudent approach. This position profits from a sharp swing, whether from official intervention driving the pair down or a breakout to new highs.

For those of us holding long USD/JPY positions, now is the time to protect profits. Purchasing out-of-the-money put options can serve as an effective hedge against a sudden reversal. This provides a safety net if the government decides its words are not enough and direct action is needed.

Looking ahead, we must closely monitor upcoming US inflation reports and any changes in tone from the Bank of Japan. The yield differential is the primary driver, so any data affecting Federal Reserve policy is critical. A sudden increase in global market stress could also trigger a flight to the yen, acting as an unpredictable catalyst for its strength.

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