The upcoming US election on 5 November is critically important for Japan, as it remains uncertain what policy the next US president will adopt towards Asia. Trump's restrictive trade tariffs and immigration policies could drive inflation in the United States, which would hinder the Fed’s ability to continue cutting interest rates and further strengthen the dollar against the yen. According to Reuters, the market currently anticipates a Fed rate cut of 120 basis points by the end of 2025, down from an earlier forecast of 135 points.

Beyond external threats, the Japanese yen is also facing internal pressures. In recent elections, the ruling party failed to secure a majority, limiting its ability to enforce strict monetary policies. Smaller parties are demanding that ultra-loose monetary policy (ULMP) remains in place, complicating the Bank of Japan’s plans to increase the key interest rate. Recently, the rate was raised from -0.1% to 0.25%. The market is confident that the Bank will hold rates steady in its upcoming meetings on 19 December and 24 January, with expectations for a 1.0% rate only by mid-2026.

With US interest rates high (currently 5.0%) and Japan’s rates low, the yen’s exchange rate will continue to feel downward pressure. The 2024 low for the USD/JPY pair was recorded on 16 September, when it fell to 139.57. Since then, the yen has weakened, and the pair is currently trading around 152.00-153.00. Analysts at XPBEE suggest that the pair could quickly reach 155.00-160.00, at which point the Bank of Japan is likely to intervene to stabilise the yen, aiming to curb import price inflation. Historically, such measures begin with verbal interventions by top officials, but if those efforts prove ineffective, the Ministry of Finance and the Bank of Japan proceed to actual currency interventions.