The non-farm payroll data for December in the United States is about to be released, traders are wary of the risk of Japanese authorities intervening in the foreign exchange market.

The US non-farm payroll report for December, which will be released later on Friday, could potentially be a catalyst for significant volatility in the Japanese yen. Traders remain vigilant as the risk of Japanese authorities intervening in the currency market to support the yen continues to rise. The USD/JPY exchange rate is nearing the level of 1 USD to 160 JPY. If this level is breached, policymakers at the Bank of Japan will be more concerned about the effects of a weak yen on businesses and consumers. Strategists believe that if the US December non-farm payroll data is strong, it could push the USD/JPY exchange rate towards 160, bringing the lowest point in decades at 161.95 back into focus. Tsutomu Soma, a bond and forex trader at Monex, said: "If the USD/JPY exchange rate approaches 160 after the release of the US December non-farm payroll data, (Japanese authorities) intervention is possible, but there may first be some verbal warnings." "If the employment data is strong, the market will have no choice but to buy USD." It is reported that Japanese authorities intervened in the currency market four times in 2024, spending nearly $100 billion. Japanese Finance Minister Katsunobu Kato stated on Tuesday that authorities will take appropriate action to prevent excessive exchange rate fluctuations. Due to the interest rate differential between the US and Japan, the yen has been declining against the dollar for four consecutive years. Federal Reserve officials have hinted at slowing down interest rate cuts this year, while the timing of another rate hike by the Bank of Japan remains uncertain, making the yen vulnerable to selling pressure. However, what complicates matters for forex traders is that the actions of Japanese authorities last year indicated that they can amplify moments of yen strength through intervention, not just to prevent significant selling of the yen. While traders speculate on the bottom line for Japanese intervention, officials have expressed concerns not only about the specific level of the exchange rate but also about the volatility and speed of fluctuations. Jane Foley, Head of FX Strategy at Rabobank, stated that for the USD/JPY to convincingly decline, the market may have to be more concerned about the Bank of Japan tightening policy. Overnight forward markets show a 43% chance of a rate hike at the Bank of Japan's next meeting on January 23-24. Aside from US employment data, Jane Foley noted that the speech by Bank of Japan Deputy Governor Ryozo Himino next week will be important for hinting at the central bank's intentions. Bank of Japan Governor Haruhiko Kuroda reiterated on Monday that if the Japanese economy continues to improve this year, he will raise the benchmark interest rate. Kuroda stated: "Our stance is that if economic and price conditions continue to improve, we will raise policy rates to adjust the degree of monetary easing."