Since the onset of the US-Iran conflict, Japan has faced a series of setbacks. The war in the Middle East has led to rising oil prices, which have not only disrupted supply to Japan’s economy but also complicated strategies for the Ministry of Finance (MOF) and the Bank of Japan (BOJ).
In recent weeks, the Japanese yen has been struggling. This downturn is not just due to negative revisions of the economic outlook but also because the likelihood of a BOJ rate hike has lessened, even as anticipation grows ahead of spring wage negotiations. Those discussions were initially expected to temper the next rate hike by the central bank. However, amidst everything else that’s happening, it seems that these negotiations are becoming a minor concern at best.
In January and February, officials in Tokyo took steps to prevent USD/JPY from increasing through speculative “interest rate checks.” Yet, they haven’t moved towards more decisive market interventions, primarily due to the ongoing tensions between the US and Iran. So far, they’ve only issued a new verbal warning.
Looking ahead, what should we expect for USD/JPY? As the 160 mark approaches, it’s clear that this is nearing the pain threshold for the MOF. It’s a line they seemed to have set weeks ago. Still, if they do decide to step into the market, choosing the right moment is essential. External factors are currently working against them, which might be a reason for a cautious approach.
While the Takaichi trade remains firmly rooted, there’s some concern that any intervention might struggle to sustain its momentum. This was evident in July 2024, when USD/JPY surpassed 160 and then dipped to around 140. By January 2025, though, the pair had bounced back to about 159 before the dollar experienced a decline.
At the moment, strong negative influences on the yen are complicating intervention efforts. This could be why Tokyo is hesitant to act right now. Perhaps, they are waiting—and hoping—that tensions in the US-Iran situation will ease soon.
Nonetheless, if USD/JPY moves closer to or above the 160 mark, it will undoubtedly test the MOF’s tolerance and patience. If traders get too enthusiastic about a rapid increase beyond that level, they may assert their influence over the market, as they’ve already effectively marked this threshold over the past couple of months.
Remember, the pair is currently hovering just over 159, its highest level since July 2024.
