The Bank of Japan maintains its ultra-loose policy | The yen plummets to a new low this year, and global currency markets are turbulent again

1. The Bank of Japan maintains interest rates unchanged: its policy continues to "go against the world trend"

In October 2025, the Bank of Japan announced at its latest monetary policy meeting that it would maintain the short-term interest rate unchanged at -0.1% while continuing to implement the yield curve control (YCC) policy.
This decision is in stark contrast to the interest rate hike cycles of major central banks such as the Federal Reserve and the European Central Bank, and has completely dashed the market's expectations of "normalization of Japan's monetary policy."

📊 List of major policy decisions:

🔗 BOJ Official Press Release

2. Market reaction: The Japanese yen plummeted, hitting a 34-year low

Following the central bank's announcement, the USD/JPY exchange rate quickly broke through 156.00 , hitting a new low since 1990. The yen's rapid depreciation triggered significant volatility in the global foreign exchange market.

• 📉 USD/JPY: Rising to 156.8 (from around 137.2 at the start of the year)

• 📉 EUR/JPY: Rising to 165.4 (yearly high)

• 📉 JPY index: fell more than 3.2%, the largest single-day drop since 2022

🔗 Reuters Forex Report

Analysts pointed out that the Bank of Japan's "dovish stance" is in sharp contrast to the Federal Reserve's "high interest rates for longer" strategy, causing the interest rate gap between Japan and the United States to widen to more than 520 basis points , which is the main driving factor for the depreciation of the yen.

3. Why does the Bank of Japan insist on “not turning”?

There are three main logics behind the Bank of Japan's choice:

1. 📉Inflation is not yet stable : Although the core CPI has reached 2.5%, the central bank believes that the upward pressure on prices is not yet sustainable.

2. 📉Weak wage growth : Wage growth remains below 2%, failing to meet the conditions for supporting an interest rate hike.

3. 📉The economic recovery is fragile : exports and manufacturing are slowing, and a hasty tightening of policy could put the Japanese economy back at risk of deflation.

Bank of Japan Governor Kazuo Ueda said: "We have not yet seen inflation and wages enter a stable virtuous cycle. Exiting the loose policy too early will bring greater economic costs."

🔗Bank of Japan Policy Meeting Statement

IV. Global Impact: Capital Flows and Carry Trades Revitalized

The depreciation of the yen not only affects Japan's domestic economy, but also has spillover effects on global financial markets:

1. Carry Trade is Back in Style

Investors borrow low-cost yen funds to invest in higher-yielding assets such as U.S. Treasuries, emerging market bonds and commodities.

2. Asian foreign exchange markets are under pressure

Regional currencies such as the Korean won, Thai baht, and New Taiwan dollar were also dragged down by the weakness of the yen and depreciated to varying degrees.

3. Foreign capital flows into the Japanese stock market

The depreciation of the yen is beneficial to export-oriented companies, and the Tokyo Stock Exchange (TOPIX) hit its highest point in more than 30 years.

5. Investor Strategy Recommendations (Neutral Analysis)

6. Future Outlook: Will the yen’s depreciation cycle continue?

Analysts generally believe that the yen's weakness is likely to continue unless the Bank of Japan changes its policy stance before 2026 .
The Fed's high interest rate environment coupled with weak inflation in Japan means that the interest rate differential structure will suppress the yen for a long time.

However, the Japanese Ministry of Finance has already released an intervention signal and may directly intervene in the market if the yen falls below 160.

🔗Japan 's Ministry of Finance's Exchange Rate Policy Statement

📊 Summary

The Bank of Japan once again chose to "go against the trend" and continue to maintain an ultra-loose monetary policy. Although this has bought breathing space for the domestic economy, it has also put the yen under historic depreciation pressure.
Global capital is reassessing foreign exchange risks and arbitrage opportunities, and volatility in Asian financial markets may rise further.

As the global interest rate hike cycle draws to a close, Japan's "lonely easing" has become one of the most closely watched variables in the money market.

📚 Recommended reading and data sources

• Bank of Japan Official Statement

• Reuters Currency Markets

• Bloomberg FX Analysis