I just saw a very interesting market change. The Bank of Japan originally planned to raise interest rates in April, but the latest data shows that the probability has dropped to less than 20%, a sharp decline from 50% at the beginning of this week.

The reason is actually quite realistic. Ueda and others pointed out some time ago that rising crude oil prices have worsened Japan’s trade conditions, putting the economy under downward pressure. The deterioration of Middle Eastern tensions has caused oil prices to soar, which will temporarily boost inflation, but in the long run, it will hinder economic growth. This contradictory situation makes it difficult for the central bank to make a decision—raising rates risks hurting the economy, while not raising rates means facing inflation.

Therefore, the market generally believes that the timing for the yen to raise interest rates will likely be postponed to June. A recent Reuters survey shows that 38% of economists favor April, while 35% favor June, essentially tied. The Bank of Japan will officially announce its rate decision on April 28, and we should be able to see the outcome then.

But there’s an even bigger issue behind this—the depreciation of the yen. If the central bank really does not raise rates in April, the yen will weaken further. The USD/JPY exchange rate is already approaching the critical level of 160, and some analysts even believe it could rise to 165.

The Japanese government obviously can’t sit still either. Finance Minister Shunichi Suzuki recently discussed this matter with the U.S. Treasury Secretary, publicly stating that they are ready to take bold actions to support the yen. The implication is that government intervention may be on the way. However, honestly, if the Federal Reserve continues to maintain high interest rates, carry trades will keep flowing into the dollar, and government intervention alone may have limited effect. The delay in yen rate hikes combined with the strong dollar will likely continue to support the dollar’s appreciation in the short term.