According to Japanese Prime Minister Sanae Takaichi, monetary policy should promote economic growth first and then support price stability. Such an approach has supported the USD/JPY pair. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Japan’s economy is shrinking.
- The government is putting pressure on the central bank.
- Currency interventions are ineffective.
- Long positions on the USD/JPY opened at 150 and 153.75 can be increased.
Weekly Fundamental Forecast for Yen
When the government starts to control the central bank, the currency is in trouble. This was the case in the first half of 2025, when Donald Trump tried to force the Fed to lower interest rates, and the US dollar plummeted. This time, Japan’s new Prime Minister Sanae Takaichi demanded that BoJ Governor Kazuo Ueda provide regular reports on monetary policy, and the Japanese yen sagged.
Sanae Takaichi took office at the right time. At the end of the third quarter, Japan’s GDP fell by 1.8%, mainly due to tariffs on exports and investments in real estate. On the one hand, this economic trend allows the new prime minister to throw shade at the predecessor. On the other hand, it allows her to implement large-scale fiscal stimulus measures and put pressure on the central bank to keep interest rates low.
Japan GDP
Source: Bloomberg.
The new PM says that monetary policy should focus on economic growth first, and then on price stability. Her team notes the advantage of a weak yen, which allows exports to become more competitive in the face of high tariffs, and also subtly mentions that excessive and rapid speculative fluctuations in the USD/JPY rate are unacceptable. If the government really wanted to tame bulls, it would surely be hinting at its resolve. However, this is not the case.
It seems that Sanae Takaichi also controls Kazuo Ueda. She supposedly pays tribute to the independence of the central bank and supposedly allows it to act. Meanwhile, Takaichi seems to have decided which path the Japanese central bank should choose.
The economy’s weakness in the third quarter gives the prime minister more room to action. Negative GDP and export constraints are forcing the government to throw a lifeline in the form of large-scale stimulus measures, and the Bank of Japan is playing ball. Its objective is not to raise rates. In such a situation, whatever interventions are made, they will not be effective.
Interventions in USD/JPY Rate
Source: Bloomberg.
In 2024, it took $100 billion and an increase in the overnight rate to stop USD/JPY bulls. A continuation of the rally will increase costs and reduce foreign exchange reserves. These reserves are needed for the investments in the US economy that Japan has promised the Trump administration.
Thus, unlike the economy, the government’s hands are tied on Forex. Doubts about the BoJ’s monetary tightening may drive the USDJPY pair higher. Problems could only arise from a cooling US economy. However, this is still a big question mark.
Weekly USDJPY Trading Plan
Against this backdrop, long positions formed at 150 and built up at 153.75 on the USD/JPY pair can be kept open. At the same time, new purchases can be initiated from time to time.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of USDJPY in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
