Insights 
VT 
Japan’s Prime Minister, Sanae Takaichi, announced that Japan is not yet achieving the Bank of Japan’s (BoJ) price target. The Prime Minister expects the BoJ to continue working with the government to conduct appropriate monetary policy and sustainably reach this target.
Abenomics has contributed to an increase in GDP and job creation. The government plans to allocate fiscal spending strategically to enhance household income and consumer sentiment. Currently, the USD/JPY exchange rate is down by 0.14% at 154.00.
Japanese Yen Importance
The Japanese Yen (JPY) is one of the most traded currencies globally, influenced by Japan’s economic performance and BoJ policy. The BoJ’s ultra-loose monetary policy from 2013 to 2024 led to Yen depreciation. However, a policy shift by the BoJ in 2024 is now lending some support to the Yen.
The difference between Japanese and US bond yields also impacts the Yen. The BoJ’s previous policies contrasted with those of other central banks, widening the yield gap and benefiting the US Dollar. The BoJ’s recent policy changes and rate cuts by other central banks are closing this gap.
The Yen is viewed as a safe-haven currency, with market stress often increasing its value against riskier currencies.
With the government signaling that Japan is only halfway to its inflation goal, we believe the Bank of Japan will be under pressure to maintain a cautious monetary policy. This suggests any further interest rate hikes will be slow and well-telegraphed. The immediate takeaway for us is that the primary driver for a weak yen—interest rate differentials—will persist.
The latest national core CPI data from October 2025 registered at 1.6%, still well below the central bank’s 2% target, which supports this official view. We remember the BoJ finally ended its negative interest rate policy back in March 2024 but has only hiked once since, to 0.10%. This slow pace contrasts sharply with the US Federal Reserve, which is holding its key rate in the 4.00-4.25% range, creating a significant yield advantage for the dollar.
Derivative Trading Strategies
For derivative traders, this environment makes it attractive to position for continued yen weakness or, at a minimum, a lack of yen strength. Selling out-of-the-money JPY call options against the dollar is one strategy to consider. This allows us to collect premium based on the view that the USD/JPY pair is unlikely to fall significantly in the coming weeks.
However, we must be mindful of the risk of government intervention, as the pair is trading at elevated levels around 154.00. We saw Japanese authorities intervene to support the yen in the markets back in 2022 and again in 2024 as the exchange rate neared 160. Therefore, buying long-dated USD/JPY call options could be a measured way to bet on further yen depreciation while defining our maximum risk.
The government’s focus on fiscal spending to boost household income is a longer-term factor that will not impact currency markets in the immediate future. This policy divergence between a hesitant Bank of Japan and a resolute Federal Reserve will remain the key theme. This reinforces the view that carry trades, where traders borrow in yen to invest in higher-yielding currencies, will continue to be popular.
