Does the Yen Need More Central Bank Intervention?

USDJPY, Time frame: 1W, Tools: SMA50+100, Source: TradingView

The US dollar rose against the Japanese yen to its highest levels in 40 years before the end of last July, reaching around ¥164 per dollar. This significant decline in the yen’s exchange rate called for swift and immediate intervention by the Bank of Japan, this time with US assistance. The intervention successfully helped the yen strengthen by around 4%, bringing it back toward levels near ¥155 per dollar. The key question now is whether this intervention will be enough to maintain the yen’s stability and whether we can expect further intervention.

Looking at the attached chart, we can see that levels around ¥155 per dollar represent a significant support zone. This is evident from the fact that the dollar has already rebounded against the yen, gaining more than 1%. Therefore, as long as the exchange rate continues to trade above these levels, concerns over further yen weakness remain, and the possibility of additional intervention also remains.

This raises another question: Would any new intervention involve injecting large amounts of dollars into the market, as seen in previous interventions? Or would it come through a faster pace of Japanese interest rate hikes, with rates currently at 1%? It is well known that the interest rate gap between Japan (1%) and the United States (3.75%) remains significant, encouraging investors to buy the dollar and sell the yen, particularly amid conflicting and unclear expectations regarding the future path of US interest rates as inflationary pressures persist.

Ultimately, the key question is whether the yen can stabilize above the ¥155 per dollar level or whether it will weaken again and eventually break above the previous high of ¥164 per dollar.