CYJ Key Points
- We expect USD/JPY to stay in a 150–160 range. Intervention caps it near 160; Japan’s structural weaknesses keep it above 150.
- The Fed is still hiking (3.75–4.00% after September, with US CPI at 3.7%), while the BoJ sits at 1.25% with negative real rates.
- Japan runs a growing trade deficit: ¥2.8 trillion in April–September 2026, almost double a year earlier, as oil prices soar and its export engine weakens.
- Energy subsidies funded by government bonds treat the symptom, not the cause, and remove the price signal – a policy that reminds us of Thailand’s rice-pledging scheme.
- Three hidden leaks drain yen demand: household money flowing abroad through NISA, a ¥6.7 trillion digital deficit, and investment income that never comes home.
- Against the yuan, we expect the yen to keep weakening: China’s inflation is far lower than Japan’s or America’s.
The Fed is not done – and the BoJ cannot catch up
US inflation is running hot. Headline CPI rose 3.7% year on year in September and core CPI 2.6%, both above forecasts. The Fed under Chair Kevin Warsh raised rates in September to 3.75–4.00%, its first hike since 2023, and markets now price a meaningful chance of another increase. The Bank of Japan raised its policy rate to about 1.25% in September, but with Japanese core inflation around 2%, real rates in Japan remain negative. The rate gap is not closing; on the 2-year and 10-year curves it has widened since July.
A trade deficit with no export engine
Japan imports most of its energy and much of its food. With crude prices up about 75% from a year ago on Middle East tensions, imports rose 20.4% in the first half of FY2026 and the trade deficit nearly doubled to ¥2.8 trillion, the 11th straight half-year deficit. September alone showed a ¥536.5bn deficit.
The deeper problem is on the export side. In autos, China now exports more cars than Japan; in semiconductors and electronics, Korea and Taiwan lead. A weak yen used to boost exports and profits. Today it mostly raises import bills. This is “bad yen weakness”: the textbook J-curve no longer works when the export engine has moved abroad.
Subsidies: buying time, losing the price anchor
The government’s answer is subsidies. A ¥3.1 trillion supplementary budget, financed by deficit-covering bonds, extended gasoline subsidies and held down electricity and gas bills. This does nothing to solve Japan’s energy shortage. Worse, subsidising end prices removes the anchor between supply and demand: consumers get no signal to save energy, and importers keep paying in dollars.
We are reminded of Thailand’s rice-pledging scheme under the Yingluck government (2011–2014), which bought rice at 40–50% above market prices. It won votes, built up unsellable stockpiles and cost the state more than 500 billion baht. Price subsidies paid for by debt distort markets and are hard to reverse.
Fiscal dominance keeps real rates negative
Every subsidy funded by bonds makes it harder for the BoJ to raise rates aggressively, because higher yields raise the government’s interest bill. The result is a policy mix that keeps real rates negative for longer – the single most reliable recipe for a weak currency.
Three hidden leaks in Japan’s balance of payments
1. Households are selling yen. Since the new NISA launched in 2024, Japanese savers have poured money into US and global equities. Investment trusts bought a net ¥11.5 trillion of foreign securities in 2024, about 2.5 times the 2023 level and more than three times the 2014–2023 average. Every one of those purchases is a sale of yen, and it continues month after month as long as the tax incentive lasts.
2. The digital deficit. Japan pays the world for cloud services, software, online advertising and consulting. Its digital-related services deficit reached about ¥6.7 trillion in 2025, as large as the entire surplus from inbound tourism. Japan earns from visitors’ hotel stays and spends it on American technology.
3. A current account surplus that never comes home. On paper Japan still runs a large current account surplus, but it rests entirely on primary income – the returns on overseas investment. In January–September 2025 primary income was ¥33.5 trillion, while goods and services were in deficit. Mizuho estimates that about two-thirds of that income, such as reinvested earnings of overseas subsidiaries, is never converted into yen. On a cash-flow basis the surplus shrinks to only about ¥4.3 trillion. Japan is rich abroad, but that wealth does not support the yen at home.
Intervention only buys time
On 31 July, the US and Japan jointly bought yen after USD/JPY reached about 163. Japan spent about ¥15.4 trillion between late July and late August. The yen briefly strengthened to 155, yet by late August it was back near 160. Intervention can cap the range; it cannot change the fundamentals.
The cleanest dirty shirt
The dollar’s strength is not a vote of confidence in Washington. Questions over the Fed’s independence under political pressure have cost it credibility, and markets have not fully bought its policy path. But the dollar does not need to be strong – it only needs to be cleaner than the yen. With a 3.75–4.00% policy rate against 1.25%, it is.
Yen versus yuan: low inflation makes money more valuable
China’s inflation is far lower than Japan’s or America’s: consumer prices rose only 0.9% in September after a long period near deflation. When prices barely rise, money keeps its value. Together with China’s large trade surplus, this supports the yuan against the yen. CNH/JPY trades around 23.5, near the top of its one-year range of 21.9–24.2, and we expect the yen to keep weakening against the yuan.
CYJ view
We expect USD/JPY to remain range-bound between 150 and 160. A break above 160 would likely trigger intervention; a sustained move below 150 would need the Fed to turn to cuts or oil prices to fall sharply. If oil stays high, the yen will remain under pressure and the US–Japan rate gap could even widen. Risks to our view: a US recession forcing rapid Fed cuts, a collapse in oil prices, or a much faster BoJ hiking cycle.
日本語要約
- ドル円は当面150～160円のレンジで推移するとみる。160円付近では介入が上値を抑え、日本の構造問題が150円を下支えする。
- 米国の9月CPIは前年比3.7%と高く、FRBは9月に利上げ（3.75～4.00%）を実施し、追加利上げの可能性も残る。日銀の政策金利は約1.25%で、実質金利はマイナスのまま。
- エネルギーや食料を輸入に頼る日本は、原油高で2026年度上期の貿易赤字が2.8兆円とほぼ倍増した。輸出面では自動車で中国、半導体・電子で韓国・台湾に追い越され、円安が輸出を押し上げる効果は薄れている。
- 国債を財源とする補助金は根本的なエネルギー不足を解決せず、末端価格への補助は需給の本来の価格シグナルを失わせる。タイのインラック政権の米担保融資制度を想起させる。
- 新NISAを通じた家計の海外投資（2024年の投資信託による外国証券の買い越しは11.5兆円）、約6.7兆円のデジタル赤字、そして円に戻らない海外投資収益という「三つの隠れた流出」が、円の需要を構造的に弱めている。
- 中国のインフレ率は日米より大幅に低く、人民元に対して円安が続くと予想する。原油高が続けば円は引き続き圧力を受け、日米金利差はむしろ拡大し得る。
Sources: US CPI via InvestmentNews (14 Oct 2026); Malay Mail on the Fed’s September decision; International Institute for Monetary Affairs (1 Oct 2026); Ministry of Finance trade statistics via Kyodo and Daiwa Institute of Research; Sakigake on the FY2026 supplementary budget; Bangkok Post on Thailand’s rice-pledging scheme; Business Insider Japan on investment-trust outflows; International Institute for Monetary Affairs on the digital deficit; Mizuho Bank on cash-flow-based current account; TrendForce on China CPI; Matsui Securities (CNH/JPY); PPS-net (crude prices). This article is for information only and is not investment advice.
