The Japanese Yen falls below 159, approaching the lowest point of the year! However, with the fundamentals suppressing it, the Japanese authorities' intervention threshold has quietly increased. The "last line of defense" may rise to 162.

Tongtong Finance APP has learned that, although the yen is hovering near its lowest level of the year against the US dollar, traders believe the threshold for Japanese authorities to intervene has become higher. On Thursday, the USD/JPY exchange rate broke above 159, approaching the 159.45 level that prompted the Federal Reserve to conduct a so-called “exchange rate check” in January. However, the background has changed. Rising oil prices related to the Middle East conflict and strong US economic data have fundamentally boosted the dollar, making it more difficult for Japanese authorities to justify market intervention.

Rodrigo Catril, a foreign exchange strategist at National Australia Bank, said: “(Japanese authorities) now have a higher threshold for intervention. Our view is that unless there is an unruly surge in the USD/JPY exchange rate, intervention is unlikely. The 158/159 area was previously the ‘last line of defense,’ and we suspect the new line may be closer to 162.”

Japan’s heavy reliance on Middle Eastern energy imports means rising oil prices will worsen its trade balance and push up inflation, naturally exerting pressure on the yen. Meanwhile, the dollar benefits from safe-haven capital inflows, further strengthening the downward trend of the yen.

This contrasts with January, when the yen’s decline appeared more driven by positioning and speculative momentum. Japanese officials have repeatedly emphasized that their focus is on excessive volatility, not defending a specific exchange rate level.

In a report Wednesday, JPMorgan strategists wrote: “Compared to January, the motivation for US authorities to conduct exchange rate checks may be lower. Given that the recent USD/JPY rally was driven by the overall strength of the dollar, even if the rate rises above 160, it may be difficult to justify intervention.” They maintain a medium- to long-term USD/JPY target of 164.

Last month, the yen briefly gained support when Japanese Prime Minister Fumio Kishida achieved an overwhelming victory in the House of Representatives election. However, the yen weakened again after media reports that she was cautious about further rate hikes and after nominating two dovish members to the Bank of Japan Policy Board. Japanese Finance Minister Shunichi Suzuki reiterated earlier this month that the government may take action to curb excessive exchange rate fluctuations, including direct market intervention.

Notably, regarding the prospects of BOJ rate hikes, over one-third of surveyed economists expect the BOJ to keep policy unchanged next week, with a possible rate increase in April. According to a survey conducted from March 5 to 10, all 51 economists expect the BOJ Governor Haruhiko Kuroda’s board to keep borrowing costs at 0.75% after the two-day meeting next week. The proportion of economists expecting a rate hike in April has risen from 17% in the previous survey two months ago to 37%, with about two-thirds believing April is the earliest possible month for a hike.

Before the US and Israel launched attacks on Iran at the end of last month, overnight index swap markets priced in about a 68% chance of a rate hike in April after officials made a series of hawkish comments and some economic data exceeded expectations. The survey results show many believe that despite the conflict, the BOJ will proceed with policy normalization as planned.

The escalation of the Middle East war caused oil prices to surge earlier this week. Although they have retreated somewhat, supply concerns continue to cause volatility in energy markets. Many respondents said that while rising oil prices could weaken the economy, they might also, given the current economic outlook and BOJ expectations, stimulate inflation expectations. Ryutaro Kono, chief Japanese economist at BNP Paribas, wrote in a survey response: “If the economic outlook does not worsen, Haruhiko Kuroda is likely to reiterate his intention to hike rates at the post-meeting press conference. As long as the Middle East situation stabilizes, the basic expectation is for a rate hike in April.”

Beyond the Middle East situation and inflation dynamics, Prime Minister Fumio Kishida’s views are also crucial for the BOJ, especially considering her consistent support for monetary easing. Last month, her government nominated two scholars advocating for inflation—Toichiro Asada and Ayano Sato—as new BOJ board members. About 80% of economists believe these appointments clearly indicate Kishida’s tendency to slow the pace of rate hikes. However, analysts remain divided on whether the new members can slow the pace of rate increases by the nine-member board; 43% think they can, while 45% believe they cannot.

Economists also pointed out that if Kishida intervenes in BOJ policy discussions to slow monetary normalization, the yen could weaken. Over half of respondents said it would be difficult for her to prevent the BOJ from raising rates, as doing so could lead to yen depreciation, which would exacerbate the high inflation of recent years and put pressure on households.