Insights 
VT 
Japanese Prime Minister Sanae Takaichi announced a new economic stimulus package to reduce inflation pressure on households and businesses. The package is set to exceed last year’s ¥13.9 trillion, focusing on counter-inflation, investment in growth sectors, and national security.
Currently, the USD/JPY pair trades at 151.85, marking a 0.06% decrease. The Japanese Yen’s value hinges on the country’s economic performance, influenced by the Bank of Japan’s policies, bond yield differentials, and global risk sentiment among traders.
Currency Control is Key
Currency control is key for the Bank of Japan, impacting the Yen’s value. The BoJ’s ultra-loose monetary policy from 2013 to 2024 led to Yen depreciation amidst policy divergence with other central banks. However, the 2024 shift away from this policy and international interest-rate cuts are closing the gap.
The Japanese Yen often serves as a safe-haven investment. In volatile financial periods, it attracts investors seeking stability, potentially boosting its value against riskier currencies. The BoJ’s evolving monetary stance continues to shape economic and currency markets, reflecting its significant role in global finance.
The new Japanese stimulus package, announced to be larger than last year’s ¥13.9 trillion, is designed to be inflationary. This injection of capital will likely put downward pressure on the Japanese Yen in the immediate term. We are watching to see if USD/JPY will re-test the highs we saw back in late 2022 and 2024 near the 152.00 level.
However, this fiscal spending conflicts with the Bank of Japan’s recent policy direction. Recent government data showed that Japan’s core inflation for September 2025 remained at 2.7%, staying above the central bank’s 2% target for over two years now. This pressure has underpinned the BoJ’s gradual move away from the ultra-loose policies that ended in 2024, a stance that should fundamentally strengthen the yen.
Market Uncertainty and Safe Haven Role
This clash between expansionary government spending and a tightening central bank creates significant uncertainty. Derivative traders should anticipate a spike in volatility for yen currency pairs in the coming weeks. We believe options that profit from large price swings, regardless of direction, could be well-positioned as the market digests these opposing forces.
Furthermore, the yen’s role as a safe-haven asset cannot be ignored amidst rising global uncertainty. With ongoing concerns about sluggish growth in Europe and renewed trade friction between the US and China, any major flight to safety could override domestic factors. This would cause a rapid appreciation in the yen, pushing USD/JPY sharply lower.
