The yen's rally suddenly reversed. How will the market develop after breaking through 156? When will the Japanese government intervene?

On December 23, the USD/JPY exchange rate showed a clear reversal. Prior to that, on December 19, due to the dovish pace of the Bank of Japan’s rate hikes, the USD against the JPY reached a recent high of 157.76. Although the current exchange rate has retreated to the 156 level, market doubts remain about whether the Japanese government will intervene and how they might do so.

Policy Shift Clearly Evident, Government Signals Intervention

The Japanese Ministry of Finance has recently spoken out frequently. Finance Minister Shōzō Katō emphasized that the government has the authority to take decisive action in response to recent exchange rate fluctuations. Deputy Finance Minister Jun Murasaki straightforwardly stated that the current exchange rate is experiencing sharp and unidirectional volatility, and relevant departments will take necessary measures against excessive fluctuations. These statements are widely interpreted by the market as signals that the government is about to step in to stabilize the currency market, breaking the previous trend of the dollar’s continuous depreciation against the yen.

Christmas Holiday Becomes an Intervention Window

Regarding the timing of government intervention, StoneX market analyst Matt Simpson pointed out that if Japanese authorities indeed intend to act, the liquidity-sparse period from Christmas to New Year will provide optimal conditions for their intervention operations. Interventions during periods of low trading volume often amplify their effects.

However, Simpson also stated that unless the exchange rate falls below the 159 level, there is no immediate need to intervene. Compared to the market volatility in 2022, when traders actively pressured the Ministry of Finance to act, the current market atmosphere seems to lack that sense of urgency.

Rate Hike Cycle Lagging, Yen Faces Long-term Depreciation Pressure

Fundamentally, the Bank of Japan’s rate hike pace lags far behind that of the Federal Reserve. Charu Chanana, Chief Investment Officer at Saxo Bank, believes that this policy divergence makes it difficult for the yen to rebound, and it is more likely to fluctuate within a certain range—only when U.S. Treasury yields fall or global risk appetite changes might the yen see a short-term rebound.

Chanana emphasized that the biggest risk is the U.S. maintaining high interest rates long-term, while the Bank of Japan shifts back to a cautious stance. Additionally, attention should be paid to the progress of Japan’s spring wage negotiations, which will influence the central bank’s assessment of inflation.

Rate Hike Timing Is Key, Exchange Rate Could Drop to 162

The market generally expects the Bank of Japan’s next rate hike to begin in the second half of 2026. However, there are differing opinions on the specific timing. Former BOJ Policy Board member Seiji Sakurai estimates that the window for raising rates to 1% could be around June or July 2026. Meanwhile, Sumitomo Mitsui Banking Corporation’s Chief FX Strategist Hiroshi Suzuki speculates it could be October 2026.

Suzuki’s analysis states that since there is still a long time until the next rate hike, the exchange rate is susceptible to weakening due to other factors. He predicts that in the first quarter of 2026, USD/JPY could further rise to 162. This indicates that the yen’s depreciation pressure remains, and the current rebound from 156 may only be a temporary correction. For investors monitoring exchange rates, the trends of related currency pairs, including USD/CAD, are also worth continuous attention.