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Forex

HIGHER FOR LONGER USDJPY

ADMIN || 11th November 2025

Japan’s currency is back under pressure as the prospect of the US government reopening lifted the treasuries curve. Higher US yields usually aid the dollar, while rising JGB yields are doing little to support the yen. Despite the BOJ’s latest summary of opinions hinting at a possible December rate hike, the yen remains the underperformer across G-10 FX this quarter. Swaps now have the December meeting priced at roughly a coin flip for a move underscoring how skeptical traders are that the central bank will actually deliver.

Verbal intervention from officials has helped cap USD/JPY near 155, but markets have been here before. Hopes of policy normalization have tended to fade as the BOJ retreats to caution and this cycle feels no different. While Governor Ueda continues to stress wage dynamics as a precondition for tightening, the rationale for prolonged patience is wearing thin, especially as global growth holds up and inflation risks persist. That means policy caution will more readily translate into yen declines.

Meantime, politics may matter more than monetary policy considerations. The ascent of PM Sanae Takaichi has reignited Japan’s structural yen-bear narrative. Her administration’s comfort with easy monetary settings reinforce expectations that any BOJ move will be too shallow to shift the currency’s long-term path. Takaichi has already signalled a shift toward more expansionary fiscal policy and said last week that Japan remains only halfway toward achieving stable inflation supported by wage growth. That’s an indication she would like the Bank of Japan to stay cautious as it gradually raises interest rates. She has also emphasized her commitment to conducting fiscal policy that is responsible as well as expansionary.

For now, the yen’s weakness looks more like normalization within a new range than an overshoot ripe for reversal. Intervention levels near 155–160 remain sensitive, but even a 25bp hike would leave Japanese real rates deeply negative hardly the right fundamental setup for a currency poised for sustained recovery, unless global risk appetite collapses.

To add to the problem current JGB yields are still not attractive for local pension & insurance investors. According to the Asian nation’s latest balance-of-payments data published on Tuesday, Japanese investors bought more sovereign bonds from the US than any other major market in September. They net purchased ¥1.13 trillion of US debt in September. The table below shows the breakdown of Japanese buying of foreign sovereign bonds in billions of yen. The data are from Japan’s Ministry of Finance. All figures are on a net basis.

So, no flow support, an expansionary fiscal policy and a patient monetary policy implies higher for longer JPY for now.

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