Currency markets across the globe have been thrown into a whirlwind this week as shifting expectations about Japanese monetary policy sent the yen tumbling, rippling through Asian and global exchange rates, and adding fresh uncertainty to the outlook for central banks and trade. At the center of the storm: Japanese Prime Minister Sanae Takaichi’s reported reluctance to support further Bank of Japan (BOJ) interest rate hikes, a stance that has reverberated through markets and raised new questions about the delicate balance between government and central bank policy in the world’s third-largest economy.
According to Mainichi Shimbun, Prime Minister Takaichi met with BOJ Governor Kazuo Ueda last week and expressed concern about additional rate hikes. The report, which cited unnamed sources, landed like a thunderclap in currency and bond markets. As of February 25, 2026, the probability of a BOJ rate hike by April, as reflected in the Japanese Overnight Index Swap (OIS) market, had dropped to 59%—down sharply from 71% just five days earlier, according to Nihon Keizai Shimbun. By June, the probability stood at 87%, also below previous expectations of a near-certain hike. Other market indicators, including rate futures, showed even lower odds, with some pricing a 51% chance by April and 65% by June, as reported by Investing.com and Reuters.
The immediate result was a dramatic depreciation of the yen. On February 24, as news of Takaichi’s stance spread, the dollar-yen exchange rate soared to 155.79 yen, a 0.74% jump, according to Choice Economy. The yen’s weakness persisted into the following day, with the rate reaching as high as 156.279 yen during London trading before settling back to 155.580 yen in New York, Yonhap Infomax reported. At 11:08 AM on February 25, the rate hovered at 155.770 yen. The euro and pound saw smaller moves, with the euro-dollar rate at 1.1777 and the pound-dollar at 1.3499, while the dollar index itself rose by 0.15% to 97.85, reflecting the greenback’s broad-based strength.
The yen’s slide had knock-on effects across Asia. In the New York non-deliverable forward (NDF) market, the one-month Korean won to US dollar rate closed at 1440.7/1441.1 won, 0.3 won lower than the previous spot close, as reported by eToday. The dollar-won rate finished early morning trading on February 25 at 1,441.00 won, narrowing earlier gains as the yen partially rebounded. The won’s fluctuation was closely tied to the yen’s moves, with the dollar-won rate swinging between 1,448.00 and 1,439.80 and total spot foreign exchange trading volume in Seoul reaching nearly $16.8 billion, according to Yonhap Infomax.
Market participants were quick to interpret Takaichi’s meeting with Ueda as a potential signal of policy discord. While Governor Ueda attempted to downplay the significance, stating, “The meeting was an exchange of general views on economic and financial trends and did not include any specific policy requests,” as quoted by Mainichi Shimbun, traders and analysts saw the government’s apparent reluctance as a sign that further tightening could be delayed. Eric Theoret, a foreign exchange strategist at Scotiabank, told Choice Economy, “Market concerns about a delay in the BOJ’s rate hike have weighed on sentiment. Even if there is no explicit pressure, there are clear signals of differing views.” Daiwa Securities’ chief economist Toru Suehiro echoed this, noting, “If the yen is not under significant pressure, the prime minister’s comments suggest a reluctance to raise rates.”
The underlying tension is not just about the timing of rate hikes, but about the independence of monetary policy in Japan. As Newspim observed, “If the reports are true, this hints at subtle tensions between the government and the central bank over monetary policy.” The market’s sensitivity to any sign of discord was evident in the sharp moves in the yen and related currencies.
The yen’s weakness, in turn, fueled a rally in the US dollar and influenced trading in other major currencies. The euro-dollar rate dipped slightly to 1.1775, while the dollar-yuan rate rose to 6.8794 yuan, its highest since April 2023, according to eToday and Newspim. The yuan’s strength was partly attributed to expectations that recent US Supreme Court rulings could benefit Chinese exports. Meanwhile, the yen-won rate was quoted at 926.24 won per 100 yen, and the yuan-won at 209.12 won, reflecting the shifting landscape in cross-currency markets.
Beyond Asia, the currency moves played out against a backdrop of evolving trade and interest rate policy in the United States. On February 24, the US imposed a new 10% tariff on all non-exempt imports, with the White House signaling plans to raise the rate to 15% under Section 122, which allows for temporary tariffs of up to 150 days pending congressional approval. President Donald Trump, facing legal uncertainty after a Supreme Court ruling invalidated previous tariffs, was expected to unveil a new trade policy roadmap in his State of the Union address, according to Newspim. Gregory Faranello, head of US rate strategy at AmeriVet Securities, commented, “Trump will express disappointment over the tariff ruling, but there are multiple routes to pursue tariffs, and the situation is evolving.”
US Treasury yields responded with a modest uptick, the 10-year note rising to 4.037%, the 30-year holding at 4.696%, and the 2-year climbing to 3.461%. The yield curve continued to flatten, a sign that markets expect the Federal Reserve to cut rates twice this year, possibly starting in July or September, as reflected in federal funds futures pricing. Meanwhile, US stock indices rallied, buoyed by risk appetite and news that AMD had secured a $60 billion AI chip order from Meta, as reported by Yonhap Infomax.
The global context remains fluid. Tensions in the Middle East, with ongoing nuclear talks between Iran and the US, and the risk of higher tariffs for countries departing from recent trade agreements, as President Trump warned, add further layers of uncertainty. China’s offshore yuan continued to strengthen, closing at 6.878 yuan per dollar, while the euro-dollar and dollar-yuan rates reflected the shifting sands of global trade and capital flows.
For now, the focus remains on Japan and the BOJ’s next move. Economists polled by Reuters remain divided, with some expecting a rate hike by June and others citing inflation and yen weakness as possible triggers for an earlier move in April. But as the events of the past week show, policy signals—intended or not—can quickly reshape market expectations and drive dramatic moves in currencies and global assets. Investors and policymakers alike will be watching closely for the next signal from Tokyo.
The week’s drama in global currency markets underscores how sensitive investors remain to the interplay of politics and central banking, especially when it comes to the yen. With so many moving parts—from BOJ policy to US tariffs and beyond—the only certainty is that volatility is here to stay.