Yen approaches 160; Japan's finance minister warns: Ready to intervene at any time.

The yen exchange rate is approaching the 160 mark, leading to increased warnings of intervention from Japanese authorities. The market is holding its breath for the latest remarks from Bank of Japan Governor Kazuo Ueda following the central bank's interest rate decision.

Japanese Finance Minister Satsuki Katayama said at a press conference after the cabinet meeting on Thursday, "We are always highly vigilant," and authorities are "ready to respond with full force" to exchange rate fluctuations, taking into consideration the impact of such changes on people's lives. The yen previously touched 159.90, its lowest level since July 2024; after Katayama's remarks, the exchange rate stabilized near 159.80.

The Bank of Japan then announced its rate decision, keeping the benchmark interest rate unchanged, in line with broad market expectations. After the announcement, the yen rose slightly by 0.1% to 159.65, while the Nikkei 225 index fell 2.7%, following a broader risk-off sentiment across Asia. Several analysts pointed out that the tone of Governor Kazuo Ueda's press conference will directly determine whether the yen can hold the key psychological level of 160.

The current round of yen depreciation was triggered by multiple negative factors: Federal Reserve Chair Jerome Powell issued a hawkish signal, saying a rate cut would only be considered if more clear signs of inflation declining are seen; meanwhile, Iran and Israel attacked each other's key energy facilities, pushing up oil prices. The combined impact of rising oil prices and the yen's continued weakness has heightened concerns about Japan falling into stagflation.

Intervention Warnings Intensify: Katayama Emphasizes Readiness to Act Anytime

Katayama pointed out at the press conference that Thursday is "a day when speculators can more easily take action"—with the Bank of Japan Governor's press conference, Japan-U.S. leaders meeting, and ongoing developments in the Middle East all coinciding to create greater market volatility.

According to Bloomberg, Japanese authorities intervened in the market multiple times in 2024, buying yen to support the exchange rate when the yen broke below the 160 mark. Katayama's strong remarks this time were interpreted by the market as a clear signal of persistent high vigilance from authorities. After the Bank of Japan meeting in January this year, coordinated actions by U.S. and Japanese authorities triggered a strong rebound in the yen, which appreciated about 7 yen against the dollar.

Bank of Japan Holds Rates, Ueda's Press Conference Becomes Key Variable

The Bank of Japan maintained the benchmark interest rate this time. Its statement focused on the impact of the Middle East situation and oil prices on inflation, while the negative impact on growth was relatively limited, and the overall policy guidance changed little. Overnight index swaps show that traders currently see about a 58% chance of a rate hike in April.

Nomura Securities Chief FX Strategist Yujiro Goto noted that although the statement added references to the Middle East and oil prices, it was generally in line with expectations: "The main scenario remains unchanged, and there is no need to rush to adjust the outlook." He said Katayama's hawkish verbal intervention temporarily suppressed moves to test higher levels for USD/JPY, the meeting outcome was neutral, but "if Kazuo Ueda adopts a dovish tone, yen selling pressure could be reignited."

T&D Asset Management Chief Strategist Hiroshi Namioka believes the Bank of Japan's comments on the impact of crude oil on core CPI mean that, even if inflation is cost-push driven, "there is still room for a rate hike in April," and that Ueda's press conference "could be more hawkish than expected," in which case the yen would likely strengthen and equities come under pressure.

SEB Asia Strategy Head Eugenia Fabon Victorino said the BOJ statement was more focused on the inflation impact of war risks, rather than the hit to growth, with limited changes in policy guidance. She added that if Ueda's remarks are somewhat dovish, USD/JPY could gain support from the buy side.

160 Mark: Psychological Barrier and Intervention Game

Multiple strategists pointed out that 160 is currently the key psychological level for USD/JPY, and the market is still exercising restraint at this level.

SMBC Nikko Securities FX and Rate Strategist Rinto Maruyama stated that while USD/JPY reaching 160 is "not impossible," it is expected to have difficulty staying significantly above 160 for long. Given Katayama's strong verbal intervention, traders may be reluctant to hold long positions before the three-day holiday. He also warned that if authorities remain at verbal intervention even after rates break above 160, "USD/JPY will most likely continue to rise," but the likelihood of actual intervention remains low for now, "investors cannot truly feel at ease."

Victorino also noted that this round of higher exchange rates essentially reflects worsening trade terms for Japan, rather than targeted speculative activity against the yen.

The combination of rising oil prices and yen depreciation is raising external concern about Japan's potential stagflation risk. Analysts pointed out that if Japan faces both economic stagnation and inflation, the government may be pushed to increase fiscal spending, making the Bank of Japan's monetary policy tightening path more complicated.

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