USD/JPY spike highlights Japan’s policy dilemma regarding BOJ intervention

Renewed Concerns Over Yen Intervention

As the USD/JPY exchange rate edges once more toward levels that previously prompted intervention in 2024, speculation about possible action is intensifying. However, the circumstances this time have shifted. Previously, the widening gap between U.S. and Japanese interest rates was the primary driver. Now, the yen’s weakness appears to be rooted in domestic factors, including political developments and shifting expectations about government policy, rather than international carry trades.

Rumors of an imminent lower house election in Japan have further unsettled markets. Many traders are anticipating a decisive victory for Prime Minister Sanae Takaishi, which could pave the way for substantial fiscal stimulus measures. This has revived discussions about a potential return to policies reminiscent of Abenomics.