Expectations of the JPY Falling Below 160 Yen Against the US Dollar Strengthen

The yen is depreciating against the US dollar in the foreign exchange market. With the 160 yen/dollar level approaching, market vigilance regarding intervention by the Japanese government and the Bank of Japan is weak. Some argue that the yen’s depreciation, triggered by rising oil prices, does not meet the rules of intervention such as “excessive volatility” and “disorderly fluctuations,” and expectations of a break below 160 yen are strengthening.

On March 12th in the Tokyo foreign exchange market, the yen fell to 159 yen against the dollar. This was the lowest level in about a month since January 14th, when it depreciated to 159.40 yen, nearing a new low since the beginning of the year.

When the yen falls, the market’s primary focus is whether the government and the Bank of Japan will intervene in the exchange rate. In July 2024, when the yen fell to around 161.90 yen/dollar, the authorities decided to intervene by buying yen. In the market, the 160 yen level and the 162 yen level (beyond the pre-intervention low) have always been strongly considered intervention thresholds. Is there a possibility of intervention now? Motoshige Sakai, head of the Market Business Division of the Foreign Exchange Department at Mitsubishi UFJ Trust Bank, stated, “Even if the exchange rate reaches 160 yen to the dollar, the authorities may not take action.” He believes that intervention will be limited to verbal statements rather than actual intervention to curb excessive yen depreciation.

The unexpectedly low level of concern about intervention stems from the view that the current yen depreciation does not meet the rules for intervention. According to the joint statement of the Japan-US finance ministers in September 2025, foreign exchange intervention “should only be used to address excessive and disorderly exchange rate fluctuations.”

First, can the recent yen depreciation be considered “disorderly fluctuation”? The current yen sell-off is driven by rising oil prices due to the deteriorating situation in the Middle East.

West Texas Intermediate (WTI) crude oil futures, a benchmark for US crude oil, are 30-40% higher than before the US and Israel attacked Iran. The looming threat of a prolonged military conflict is strong. Besides the logic of “buying dollars in times of turmoil,” some argue that Japan’s trade deficit, due to its reliance on energy imports, will widen, leading to increased yen selling by actual demanders and consequently, yen depreciation against the dollar.

Stefan Rittner of Allianz Global Investors argues that “since the yen’s depreciation is due to macroeconomic factors, it cannot be said to be an unfounded depreciation, making intervention difficult.”

Furthermore, it’s difficult to conclude that speculative activity exacerbated the disorderly yen sell-off. Data from the U.S. Commodity Futures Trading Commission (CFTC) shows that as of March 3, non-commercial sectors such as hedge funds held a net short position of 16,575 yen contracts, a relatively small amount.

In July 2024, when intervention occurred, speculators’ net short positions in the yen exceeded 180,000 contracts, reaching a historical high. Intervention induced the closing of such short positions, preventing further yen depreciation. However, with only a small net short position currently present, “there is still room for further yen selling, and actual intervention is unlikely to curb yen depreciation” (Sakai of Mitsubishi UFJ Trust Bank).

The “excessive volatility” that the market has consistently emphasized as a condition for intervention also seems inappropriate in the current situation. Monex Securities FX advisor Tsuneo Yoshida focuses on moving averages. Yoshida stated that past interventions were implemented when the yen exchange rate (1) fluctuated by 20-30% above or below the 5-year moving average, which reflects medium- to long-term price fluctuations; and (2) deviated by more than 5% from the 120-day moving average.

In fact, the interventions in September-October 2022, April-May 2024, and July 2024 all met these two conditions. However, currently, the 5-year moving average is 139 yen, and from 159 yen, the deviation is less than 20%. Looking at the 120-day moving average, a 5% deviation is 162 yen, therefore, “the current situation cannot be described as ‘excessive yen depreciation'” (Yoshida).

Some analysts also believe that the US does not welcome a dollar depreciation that could exacerbate domestic inflation. Fukuoka Financial Group’s chief strategist, Toru Sasaki, stated, “In the context of international turmoil, taking unnecessary actions could lead to unforeseen consequences and fail to gain US support.”

Given the uncertainty surrounding the Middle East, the probability of the Bank of Japan raising interest rates before its April meeting is only 60%. The current environment is not suitable for using currency intervention to buy time for a rate hike. Intervention would be against regulations and its effectiveness is questionable, leading to a growing expectation that the Bank of Japan will not intervene. Sasaki stated, “I originally expected the currency to depreciate to 165 yen by the end of the year, but it may reach that level earlier.”