May 2026
The Bank of Japan intervened after the yen weakened past the critical
160 level against the dollar on 30 April 2026, hitting 155.49, reportedly
spending around $34.5 billion (¥5 trillion) in its first currency intervention since July 2024
according to Bloomberg. Nonetheless, many investors believe that the impact
will be short-lived and anticipate USDJPY to rebound towards the 160 range in
due course due to macro backdrop of elevated oil prices and higher US rates.
Oil prices remain elevated, the Federal Reserve has held off on rate cuts, and
Japan’s real interest rate continue to lag well behind its global peers.
It is skeptical that intervention alone can be successful in driving
USDJPY sustainably lower without a shift towards greater recession concerns or
much more hawkish BOJ. BOJ is under pressure to raise interest rates amid
surging price pressures but at the same time fiscal concerns and worsening
economic conditions are pain points that the BOJ has to address and balance out
as well.
April 2026
The Yen has been weak for a long time but now higher energy costs and stronger USD are pushing the yen even lower. USDJPY exchange rate getting close to 160 will push the BOJ to step in to take actions. Market is concerned that BOJ may fall behind the curve failing to hike, which will push USDJPY even higher potentially into the 160s. This will prompt Ministry of Finance to intervene to push the pair back down. JPY was weakening despite Japanese bond
yields had risen sharply over the past month as market was concerned about the impact of energy market disruption on the Japanese economy.
Yen got a boost from stronger-than-expected PMI data for April, showing that manufacturing activities in Japan is growing despite energy market disruption from the Iran war. BOJ held interest rates steady and warned of possible rate hikes ahead. The yen briefly climbed above 160.70 and senior Japanese officials intensified verbal intervention by warning of “bold action” and “the final advisory if you want to escape”. In response, the dollar dropped to around 158.75. However, the likelihood of a meaningful yen rebound to levels stronger than 150 per USD appears limited, as elevated oil prices continue to weigh on Japan’s balance-of-payment dynamics.
March 2026
Weaker yen can push up import costs and may affect underlying inflation. The geopolitical risk drove oil prices higher spurring inflation risk in Japanese economy that is highly dependent on energy imports.
BOJ (Bank of Japan) governor warned that the currency’s depreciation can intensify the inflationary impact from higher commodity prices by increasing the cost of imported fuel and raw materials. The combination of rising energy prices and a weaker yen can create cost-led inflation in Japan. Higher inflation can erode household’s purchasing power weighing on their consumption. Higher import costs will squeeze real wages, and reduce household spending, while the traditional benefits of yen depreciation for exporters will be weaker during global economic uncertainty. BOJ will face increasing pressure to normalize its ultra-loose monetary policy to stabilize its currency and contain the import-led inflation. Policymakers in Japan should balance between the need to contain currency-driven inflation pressures and the risk of tighter policy further slowing down the domestic demand.
February 2026
Yen strengthened against USD due to the talks of “rate checks” as investors feared immediate intervention, but it never came. As BOJ (Bank of Japan)’s intervention does not fix the fundamental problems, JPY is expected to continue to weaken until BOJ turns hawkish.