The yen hits a six-month low, and Japanese officials issue intervention warnings.

After the Japanese yen exchange rate fell to the lowest level since July last year, Japanese authorities issued a warning to speculators for the first time in 2025, expressing concern about the sudden and one-sided trends in the foreign exchange market. Japanese Finance Minister Katsunobu Kato told reporters on Tuesday, "If there is excessive volatility in the foreign exchange market, we will take appropriate action." This implies an implicit warning from the Japanese authorities about direct intervention in the forex market. Kato said he is deeply concerned about recent actions, including those driven by speculators. In early trading on Tuesday, the yen exchange rate touched 158.42 yen to the dollar, the lowest in nearly six months. After Katsunobu Kato's speech, the yen strengthened. As of the time of writing, the dollar was trading around 158.11 yen. The yen continues to hover around levels that triggered intervention in the summer, as market expectations for Japan's rate hike and the timing of the US rate cut were pushed back in December last year. The difference in interest rates and yields between the two economies is one of the key factors affecting exchange rates. Any further changes in expectations for US or Japanese interest rate movements could significantly increase speculation about intervention again. The US nonfarm payroll data to be released on Friday evening could be one of the potential catalysts for sudden exchange rate fluctuations. If the US job data released on Friday is stronger than expected and further delays the expectation of a US interest rate cut, it could weaken the yen. Japan intervened in the forex market four times in 2024, spending nearly $100 billion to support the yen. The most recent interventions occurred in July when the dollar-yen exchange rate broke the 160 level. After Bank of Japan Governor Haruhiko Kuroda unexpectedly signaled caution about raising rates at the December policy meeting, expectations for a rate hike have diminished recently. In a series of New Year speeches on Monday, Kuroda suggested that if the Japanese economy continues to improve this year, the Bank of Japan will still raise its benchmark interest rate, opening the door for a rate hike at future meetings. Overnight forward trading on Tuesday indicated a 48% probability of a rate hike by the Bank of Japan in January. In contrast, more than 80% expected the Bank of Japan to take action before January last month. Barclays said on Tuesday that due to the uncertainty surrounding domestic and foreign policies, they expect the Bank of Japan to raise rates in March and October this year, instead of January and July as previously expected; recent communications from the Bank of Japan indicate that the Bank's concerns about the weakness of the yen have diminished compared to July. Bank of Japan Deputy Governor Ryozo Himino's speech next week could be a key event in assessing the timing of the next rate hike in Japan and the likelihood of a rate hike in January or March. The Bank of Japan will also hold a meeting of branch managers later this week and may provide further insights into wage trends in various regions of Japan, which is a key area of focus for Kuroda. Globally, policy signals from incoming US President Trump have exacerbated the volatility of the yen. A report hinting that Trump may reduce the scale of tariff increases initially weakened the dollar overnight, but Trump later denied the report, leading to a rebound in the dollar.