Title: USD/JPY Forecast: Yen Remains Resilient Despite Political Turmoil
Adapted and expanded from the original article by Kenny Fisher, Forex Crunch
The Japanese yen has displayed unexpected resilience, maintaining stability against the US dollar despite ongoing political instability in Japan. In recent months, the USD/JPY currency pair has been influenced by a mix of domestic Japanese political developments, global economic conditions, and central bank policies. This article expands upon the original analysis by Kenny Fisher on Forex Crunch, delving deeper into the current USD/JPY trends, factors shaping the yen’s performance, and what traders might expect in the near to midterm future.
Current Performance of USD/JPY
– As of July 2025, the USD/JPY pair is trading close to the psychological level of 140.00.
– Over the past month, the currency pair has shown slight fluctuations within the 138.50 to 141.50 range.
– Despite concerns related to Japan’s political leadership, the yen has remained relatively stable.
Unlike previous scenarios where political uncertainty often led to currency depreciation, the yen’s current strength appears to be supported by international demand and conservative investor behavior, signaling a shift in historical patterns.
Political Instability in Japan
Japan is facing a period of political turbulence following a sequence of leadership shakeups in the ruling Liberal Democratic Party (LDP). The recent resignation of the Prime Minister, amid falling approval ratings and intra-party unrest, has raised concerns both domestically and abroad.
Key political factors impacting the yen:
– A leadership vacuum in Japan is contributing to a cautious investor sentiment.
– Ongoing factional conflicts within the LDP are raising fears of policy gridlock.
– Despite these issues, market participants believe that key financial and economic policies will remain largely unaffected due to the strong influence of bureaucratic institutions.
Investors have generally viewed Japanese politics as stable and predictable, which explains why the current situation has drawn significant attention. However, the Japanese yen has not followed its traditional pattern of depreciation amid domestic uncertainty. This suggests a decoupling between political events and currency performance, at least in the short term.
Bank of Japan’s Monetary Policy
One of the major drivers of the yen’s stability has been the cautious and consistent approach of the Bank of Japan (BoJ). While many central banks around the world have been tightening monetary policy in response to inflation, the BoJ has stood firm in its commitment to ultra-loose monetary conditions.
Current BoJ policy stance:
– Maintenance of negative short-term interest rates at -0.1%.
– A continued program of bond purchases aimed at keeping 10-year government bond yields near 0%.
– Strong focus on achieving a stable 2% inflation rate, which remains elusive.
In recent months, inflation in Japan has ticked upward slightly, driven largely by higher import prices. However, the BoJ has indicated it will not rush to tighten policy unless inflation becomes demand-driven and sustained.
USD Trends and Federal Reserve Policy
On the US side of the pair, the dollar has been influenced by mixed economic data and the Federal Reserve’s evolving policy stance. The Fed raised interest rates steadily between 2022 and 2024 to combat rising inflation, but it has since adopted a more cautious posture.
Key US economic factors affecting the dollar:
– Annual inflation has settled near the Fed’s 2% target, although wage growth remains elevated.
– Recent job market data has indicated a cooling trend, suggesting the Fed may hold rates steady for the foreseeable future.
– GDP growth in Q2 showed signs of slowing, fueling expectations of a potential rate cut in early 2026.
The Fed’s minutes from recent meetings indicate that officials are comfortable with the current level of rates, pending further economic data. This neutral bias has limited the upside for the US dollar, placing less pressure on the yen.
Global Risk Sentiment Supporting Yen
Despite internal instability, the yen has continued to attract demand due to its traditional role as a safe-haven currency
Explore this further here: USD/JPY trading.