Japan’s Finance Minister Satsuki Katayama said she will attend the G7 finance ministers meeting in France from May 17, according to Reuters. She said Japan will take a flexible approach to protecting household livelihoods as energy import costs rise after Middle East supply disruptions.
Katayama said Japan will monitor how higher energy import costs affect electricity prices for now. She said there is 1 trillion yen in reserve for the fiscal 2026 budget and there is no urgent need for an additional budget.
She said government action will be adjusted as needed to support people’s livelihoods. She also noted that bond yields are rising worldwide, including in the UK and the US, and that this is likely to be discussed at the G7 talks.
At the time of writing, USD/JPY was up 0.07% at 158.48.
We see the upcoming G7 meeting as a key event for the Japanese yen, with USD/JPY trading near 158.50. This level puts currency intervention risk on high alert, especially considering the massive ¥9.8 trillion intervention we saw back in April 2024 when the pair crossed 160. Traders should therefore watch for any coordinated G7 language on currency volatility, which could precede direct action from the Ministry of Finance.
The minister’s focus on rising energy import costs is critical, as these are directly fueling domestic inflation. With Japan’s core CPI recently hitting 2.9% for April, well above the central bank’s target for the 25th consecutive month, pressure is mounting on the Bank of Japan. This persistent inflation increases the likelihood of a more hawkish policy stance or even another rate hike later this year.
We are also monitoring the G7 discussions on rising global bond yields, as noted in the statement. The US 10-year Treasury recently climbed back to 4.85%, a level not seen since late 2025, creating a challenging environment for Japanese government bonds. This suggests traders should be positioned for rising JGB yields, perhaps by shorting futures contracts to hedge against falling bond prices.
Given these factors, derivative strategies should focus on the high probability of volatility in the coming weeks. We believe buying put options on the USD/JPY pair is a prudent way to hedge against or profit from a sudden intervention-driven strengthening of the yen. Additionally, with global yields rising, buying put options on the Nikkei 225 could serve as a hedge against a broader market downturn.
