Analysis of the BOJ's Absence from the Federal Reserve Joint Statement: Yen Under Pressure and Challenges to Monetary Policy Independence

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Recently, major global central bank governors launched a rare joint initiative, signing a statement supporting Federal Reserve Chair Jerome Powell’s stance on safeguarding monetary policy independence amid judicial investigations by the Trump administration[1][2]. This statement was first signed by European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey, and later received support from central bank governors of more than a dozen countries including Canada, Australia, South Korea, Brazil, Norway, as well as the Bank for International Settlements[1]. However, in this statement dubbed the “global central bank united front”, BOJ Governor Kazuo Ueda was the only G7 member central bank governor to abstain from signing[1][2].

The Japanese government has adopted a cautious attitude towards this absence. Japan’s Chief Cabinet Secretary Hitoshi Kihara stated at a press conference that this decision “is related to the BOJ’s policy-making” and that it is inappropriate to comment on the statements of other central banks[1]. The BOJ’s media relations department responded that the bank “does not comment on the reactions of other central banks”[2]. Notably, sources close to the matter revealed that the BOJ initially expressed willingness to support the joint statement but ultimately failed to sign it[2].

Gilles Moec, Chief Economist at AXA Investment Managers, pointed out incisively that the BOJ has always had an ambiguous attitude towards central bank independence[1]. He further explained that although the BOJ is technically independent from the government, there is a consensus within the institution that the government has a say in monetary policy, and the BOJ should listen to and consider these opinions. This unique institutional arrangement gives a certain “rationality” to the existence of government influence in the BOJ’s monetary policy decision-making process.

From an institutional design perspective, the Bank of Japan Act does grant it independence from the government, but in practice, government representatives have long served as members of the Monetary Policy Committee, an arrangement that is rare among major global central banks. Japan’s Ministry of Finance has maintained unignorable influence in monetary policy discussions, which is reflected in both yen exchange rate policy and interest rate decisions.

This incident reflects the increasingly obvious policy divergence between the Japanese government and the central bank. On December 19, 2025, the BOJ announced a 25-basis-point interest rate hike to 0.75%, but this decision was inconsistent with the government’s wishes[3]. Masazumi Wakatabe, a member of the Japanese government’s economic policy panel and former Deputy Governor of the BOJ, publicly expressed opposition to an early rate hike two days before the increase, advocating that priority should be given to raising the neutral interest rate through fiscal policy and growth strategies, and that rate hikes should be initiated only after the neutral interest rate rises naturally[3].

Wakatabe’s stance is seen as a reflection of the policy propositions of “Takaichi Economics” put forward by Japanese Prime Minister Sanae Takaichi. The core of this economic philosophy is to strengthen the supply side of the economy and stimulate economic growth through expansionary fiscal policy, rather than relying on monetary policy tightening[4]. This creates obvious tension with BOJ Governor Kazuo Ueda’s strategy of gradual rate hikes based on inflation data.

From an international perspective, this joint action by global central bank governors highlights the international consensus on safeguarding central bank independence, and Japan’s absence has created a subtle divergence between it and mainstream Western central banks on this issue. This divergence may affect the international market’s assessment of Japan’s monetary policy independence, thereby impacting the yen’s appeal as a safe-haven asset.

From a domestic perspective, the Takaichi administration seems to be strengthening its implicit influence on monetary policy. If Sanae Takaichi wins the upcoming early general election, the implementation of her expansionary fiscal policy will become more explicit, which may further compress the BOJ’s policy space[4]. The market widely fears that Japan may move towards a path of “fiscal dominance of monetary policy”, which conflicts with the central bank’s independent credibility that Ueda is trying to establish.

The yen exchange rate has shown a continuous depreciation trend recently. As of January 13, 2026, the USD/JPY exchange rate has broken below the 159.0 mark, hitting its lowest level since July 2024[4][5]. This is the fifth consecutive month of yen weakness, making it one of the worst-performing G10 currencies in 2025[5]. EUR/JPY has even broken through the key 185 level historically[4].

From a technical analysis perspective, the yen has entered the “oversold” zone, with fierce long-short games in the market. The January 6 positioning report from the U.S. Commodity Futures Trading Commission (CFTC) shows that non-commercial yen positions are net long by 8,815 contracts, with basically balanced long and short forces[4]. This pattern indicates that there is obvious divergence in the market regarding the yen’s subsequent trend: on the one hand, technical indicators suggest that the yen may rebound in the short term; on the other hand, concerns about Japan’s political situation and fiscal policy prevent short sellers from exiting easily.

The fundamental reason for the yen’s continuous depreciation is the persistent divergence between U.S. and Japanese monetary policies. Although Japanese officials emphasize that the interest rate gap between the U.S. and Japan is narrowing, from the perspective of market expectations, the differences in the policy paths of the two sides remain significant[4].

On the U.S. side, the unemployment rate fell to 4.4% in December 2025, and the labor market remains resilient, which has significantly cooled market expectations for a short-term Fed rate cut[4]. Several Fed officials have clearly stated that there is no reason to cut rates in the short term; Richmond Fed President Thomas Barkin believes that the current economy is in a “delicate balance”, with inflation above the target but not accelerating, and the unemployment rate not out of control, so no immediate policy action is needed[1]. The market expects that the Fed’s rate cut range in 2026 may be reduced, which provides impetus for the strengthening of the U.S. Dollar Index.

On the Japanese side, although Kazuo Ueda hinted at continuing rate hikes at the December monetary policy meeting, he emphasized that “the monetary environment remains accommodative”[3]. Shin Sakurai, former BOJ board member, analyzed that market concerns about Sanae Takaichi’s expansionary fiscal policy will lead to continued yen weakness, and the BOJ may raise rates as early as April, but current policy signals remain moderate[4]. Overnight swap data shows that traders believe the probability of the BOJ raising rates in April is about 40%, a probability insufficient to reverse the yen’s structural depreciation trend.

Japanese Prime Minister Sanae Takaichi has informed party officials of her intention to dissolve the House of Representatives and hold an early general election on January 23. This political change has become the direct trigger for the recent accelerated depreciation of the yen[4][5]. The market fears that if Takaichi’s coalition wins the general election and gains more seats in the House of Representatives, her expansionary fiscal policy will receive stronger political support, which will further widen the U.S.-Japan interest rate gap and intensify the yen’s depreciation pressure.

Market analysts generally believe that investors have already priced in the expectation that Takaichi’s coalition will win more seats in the House of Representatives[4]. Carol Kong, Currency Strategist at the Commonwealth Bank of Australia, pointed out that this is the main reason for the current sell-off of the yen. If the combination of expansionary fiscal policy and accommodative monetary policy is strengthened, the yen exchange rate may face greater structural downward pressure.

In the face of the yen’s continuous depreciation, the Japanese government has launched verbal intervention procedures. On January 12, 2025, Japanese Finance Minister Satsuki Katayama and U.S. Treasury Secretary Bessent held a bilateral meeting in Washington, where the two sides exchanged views on the yen’s recent “one-sided depreciation” and expressed common concerns[4]. Japan’s Deputy Chief Cabinet Secretary Masanao Ozaki even issued a direct warning, emphasizing that “the government will take appropriate measures against excessive currency fluctuations, including speculative fluctuations”[4].

However, based on historical experience, the effect of verbal intervention by Japanese officials is limited. In 2024, the Japanese government intervened multiple times when the yen approached the 160 mark, but these interventions only provided short-term support and failed to reverse the yen’s medium- to long-term depreciation trend[5]. Hiroyuki Machida, Head of Japan Foreign Exchange at Australia & New Zealand Banking Group (ANZ), analyzed that Japanese officials believe the current yen weakness has deviated from fundamentals, justifying intervention, but the sell-off trend will continue until the election results and fiscal policy direction are clear. If the government wants to effectively support the yen, it needs to deploy larger-scale intervention forces[4].

The market widely expects that Japan’s Ministry of Finance may take substantive intervention measures when the foreign exchange market approaches the 160 mark[4][5]. However, considering market uncertainty about policy direction and the structural issue of the U.S.-Japan interest rate gap, relying solely on foreign exchange intervention may be difficult to produce lasting effects.

Looking ahead, the yen exchange rate will face dual tests in the short term. From the perspective of domestic Japan, the result of the early general election will be the core variable affecting the exchange rate. If the Liberal Democratic Party led by Sanae Takaichi wins the election, the implementation of her expansionary fiscal policy will become more explicit, which may lead to continued yen depreciation pressure; conversely, if there is an unexpected election result and policy uncertainty decreases, the yen may get a short-term rebound opportunity[4].

From the U.S. perspective, the upcoming December 2025 CPI data will be a key variable affecting the USD/JPY exchange rate trend. The market widely expects that as statistical distortions caused by the government shutdown fade, the U.S. December core CPI year-on-year growth rate will rebound to 2.7%[4]. Sticky inflation will support the Fed’s decision to keep interest rates unchanged in the short term, which may further strengthen the dollar’s dominant position and suppress the yen.

In the medium to long term, the trend of the yen exchange rate still depends on Japan’s economic fundamentals and the degree of policy divergence between the U.S. and Japan. Junya Tanase, Head of Japan Foreign Exchange Strategy at JPMorgan Chase, believes that the yen’s fundamentals are quite weak, and this situation is unlikely to change significantly in 2026. He expects the USD/JPY exchange rate to rise to 164 by the end of 2026[4].

Lee Hardman, an analyst at Mitsubishi UFJ Financial Group, said that fiscal concerns coupled with the BOJ’s slow pace of rate hikes make the yen highly vulnerable to further weakness in early 2026[4]. UBS also predicts that USD/JPY may test the 160 mark in 2026[3].

However, some institutions hold different views on the yen’s medium- to long-term trend. Based on the expectation of narrowing U.S.-Japan interest rate gaps, Morgan Stanley predicts that USD/JPY may fall to 140 in 2026[4]. This indicates that there is significant divergence in the market regarding the yen’s future trend, and investors need to closely monitor policy dynamics and economic data changes in the U.S. and Japan.

The incident of the BOJ’s absence from the Fed’s joint statement is seemingly a divergence in diplomatic statements, but it deeply reflects the structural challenges faced by Japan’s monetary policy independence. Domestically, the Takaichi administration’s “Takaichi Economics” prioritizes fiscal policy, and the government’s implicit influence on monetary policy is increasing; internationally, the BOJ’s choice not to align with major Western central banks may affect the international market’s assessment of its independence.

For the yen exchange rate, the current main pressures come from the divergence between U.S. and Japanese monetary policies, Japan’s political uncertainty, and market concerns about Japan’s fiscal expansion. Although the Japanese government may take intervention measures in the foreign exchange market, the effects of these measures may be limited and short-lived. When formulating yen-related investment strategies, investors should closely monitor the results of Japan’s general election, the direction of the Fed’s interest rate policy, and the BOJ’s policy signals.

[1] FastBull - “Defending Powell: A Rare United Front of Global Central Banks” (https://m.fastbull.com/cn/news-detail/4365534_1)

[2] Business Times - “Global central bankers defend Fed’s Powell after Trump threat” (https://www.businesstimes.com.sg/international/global/global-central-bankers-defend-feds-powell-after-trump-threat)

[3] Tencent News - “BOJ and Government Have Differences on Rate Hikes; Future Attention Should Be Paid to the Central Bank’s Attitude” (https://view.inews.qq.com/a/20251219A06ZHB00)

[4] TradingKey - “Oral Intervention by Japanese Officials Fails; Yen Exchange Rate Breaks Below 159.0; Takaichi’s Policy Brings Uncertainty” (https://www.tradingkey.com/zh-hans/analysis/forex/jpy/261469893-japan-jpy-rate-takaichi-tradingkey)

[5] Mitrade - “Yen Exchange Rate Approaches 159! ‘Takaichi Trade’ Makes a Comeback; Is Japanese Government Intervention Imminent?” (https://www.mitrade.com/cn/insights/forex-news/jpy/20260113A02C)