Japan Inbound Capital Intelligence · Market Context
The yen and rates
On 25 September Finance Minister Katayama disclosed that President Trump raised concern about the weak yen at the Japan–US summit, and that Prime Minister Takaichi said an undervalued yen is a problem.
Sources: Ministry of Finance, minister's press conference, 2026-09-25; Bank of Japan statement, 2026-09-18; Federal Reserve FOMC statement, 2026-09-16; CFTC Traders in Financial Futures, 2026-09-25; FXEmpire forward rates, 2026-09-28; MOF JGB yields, 2026-09-25; MOF intervention schedule, accessed 2026-09-28
What moved. On 25 September Finance Minister Katayama disclosed that President Trump raised concern about the weak yen at the Japan–US summit, and that Prime Minister Takaichi said an undervalued yen is a problem. Japan's top currency official, Mimura, told Reuters the message was "very clear" and markets "should take it literally". The BOJ had raised its rate to 1.25% by a 7–2 vote. Its statement commits to further hikes but to no date. Asada and Sato dissented, arguing the economy and prices had not accelerated enough. The Fed raised its range to 3.75–4.00% on 16 September.
Fast money read the BOJ as soft. Leveraged funds flipped from a net short of 53,255 yen contracts (futures and options combined) to a net long of 20,069 in the week to 15 September. They cut that to 4,472 a week later, a 78% fall. Asset managers stayed long, at 42,498 contracts after a 22% trim. TONA futures (contracts on Japan's overnight rate) priced an 11.5% chance of an October hike and 67.6% by December, as of 25 September. USD/JPY traded about 157 on 28 September. The 10-year JGB closed at 3.071% on 25 September, up from 2.981% on hike day.
How this changes the entry maths for a USD investor. Hedging now pays a dollar buyer. The 3-month USD/JPY forward sits about ¥1.15 below spot. A dollar investor who owns yen assets and sells yen forward earns about 0.73% a quarter, roughly 2.9% a year. That is a little wider than the 2.625-point gap between the Fed midpoint and the BOJ rate. For this reader, "hedging cost" is the wrong phrase; it is a hedging pickup. Staying unhedged is a bet that USD/JPY falls below about 156.05 by late December. With both governments leaning on the yen, that bet is live. But it gives up about 2.9% a year of certain carry, and the leveraged money that would push it has just stepped back [S]. On the asset side, a 3.07% 10-year JGB raises the discount rate on Japanese real assets; the hedge pickup partly offsets that for a dollar buyer [S]. JPY Hedging BoJ Policy Fed Rate Path
EUR and SGD investors. The same logic applies wherever the home rate sits above the BOJ's 1.25%: the forward sits below spot, and the hedger collects the gap. The size of the pickup depends on each currency's own forward, so check it before setting hedge ratios.
How to act: MOF publishes intervention data for 27 August to 28 September on 30 September at 19:00 JST. A non-zero figure means Tokyo intervened at some point in that period; the daily breakdown due 2–9 November shows whether it came after the reported 18 September rate check. Zero means talk only. Re-check hedge ratios after it. The next BOJ meeting is 28 October. The default for dollar buyers is to hedge with 3-month forwards and collect the carry. Stay unhedged only with a conviction that USD/JPY breaks below about 156 within the quarter.
Disclaimer: Japan Inbound Capital Intelligence is published for general information and education only. It is not investment advice, and it is not an offer, solicitation or recommendation to buy, sell or hold any financial instrument, nor an invitation to engage in any investment activity. Nothing in it takes account of any reader's circumstances, objectives or needs. Figures and sources are believed accurate at the dates shown, but completeness and continuing accuracy are not guaranteed. Take your own professional advice before acting on anything here.