Based on the analysis originally published by MUFG Research, this article provides a detailed breakdown and expansion of the JPY Weekly FX Outlook dated 16 September 2025. The report explores the near-term and medium-term trajectory of the Japanese yen (JPY) against major currencies, focusing on monetary policy divergence, key macroeconomic indicators, and central bank developments. This rewritten version expands to over 1,000 words while maintaining the core insights and strategic tone from the original document authored by MUFG’s FX Strategy team.
Market Background: Japanese Yen Weakness Persists
In recent weeks, the Japanese yen has continued to trade on a weaker footing. Against both the US dollar (USD) and other major currencies, JPY has struggled to find support amid diverging macroeconomic conditions and monetary policy paths between Japan and its global counterparts. As of mid-September 2025, the dollar-yen (USD/JPY) pair is trading in the 149–150 range, testing levels not seen consistently since late 2022.
Key Drivers Behind Yen Weakness:
– Yield differential pressures: U.S. Treasury yields remain elevated as markets price in a higher terminal rate and longer monetary tightening cycle in the U.S. In contrast, Japanese government bond (JGB) yields remain low, supported by the Bank of Japan’s continued ultra-loose monetary stance.
– Diminished investor demand for yen as a safe haven: Global risk sentiment remains relatively resilient despite challenges in China and Europe. The lack of acute financial stress has limited JPY’s traditional role as a safe haven asset.
– Japan’s subdued inflation expectations: While Japan has experienced some degree of inflation recovery, both market-based and survey-based expectations for medium-term inflation remain modest compared to other G7 economies. This dampens expectations of rapid monetary tightening from the Bank of Japan (BoJ).
– Currency intervention risk: Although the Ministry of Finance (MoF) has escalated warnings about potential FX intervention, actual intervention has remained inactive. Market participants are viewing verbal interventions as less credible without corresponding BoJ policy changes.
Bank of Japan Policy Watch: September Meeting in Focus
All eyes are on the Bank of Japan’s scheduled policy meeting later this month. Market participants will be paying close attention to any indications that policymakers are preparing to shift away from their long-standing accommodative stance. However, expectations for a significant shift remain low.
Policy Considerations:
– The BoJ continues to maintain its Yield Curve Control (YCC) framework, albeit with minor tweaks introduced earlier in 2023 that allow more flexibility in 10-year JGB yields.
– Core inflation has remained above the BoJ’s 2 percent target for several months, but the central bank continues to label it as “cost-push driven,” suggesting transience.
– Wage growth has improved in 2025, but not yet at a pace or consistency that would justify a tightening signal under BoJ Governor Kazuo Ueda’s cautious framework.
– The bank has emphasized the need for inflation to become “sustainably and stably” anchored above 2 percent, implying that even persistent 2.5 percent headline CPI may not suffice without wage gains and inflation expectations following suit.
Verbal Warnings from the Government
Japan’s Ministry of Finance has adopted more forceful tone in FX market commentary in response to yen weakness. Finance Minister Suzuki and top currency official Masato Kanda have emphasized the potential for intervention, referencing disorderly markets and “excessive volatility.” These remarks echo statements made in September and October of 2022, which preceded the government’s rare direct yen-buying interventions.
However, traders seem unconvinced:
– No clear criteria have been outlined for intervention triggers.
– Past intervention episodes proved relatively short-lived in supporting the yen.
– Without underlying support from BoJ policy adjustments, verbal warnings alone have limited credibility.
Intervention Thresholds:
While the MoF has not made any explicit mention of numerical FX levels, some strategic considerations imply possible
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