The yen has fallen below 159, approaching its lowest point of the year! However, under the pressure of the fundamental factors, the threshold for intervention by the Japanese authorities has quietly increased, and the "last line of defense" may rise to 162.

Although the Japanese yen is hovering near its lowest level of the year against the US dollar, traders believe that the threshold for Japanese authorities to intervene has become higher. On Thursday, the USD/JPY exchange rate rose above 159, approaching the level of 159.45 in January that prompted the Federal Reserve to conduct a so-called "currency check." However, the background has changed. Rising oil prices related to the conflict in the Middle East and strong US economic data have fundamentally boosted the dollar, which may make it more difficult for Japanese authorities to provide reasons for market intervention. Rodrigo Catril, a forex strategist at the National Australia Bank, said: "(Japanese authorities) now have a higher threshold for intervention. Our judgment is that intervention is unlikely unless there is a disorderly rise in the USD/JPY exchange rate. The 158/159 range was the previous 'last line of defense,' and we suspect that the new line of defense may be closer to 162." Japan's high dependence on energy imports from the Middle East means that rising oil prices will worsen its trade balance and increase inflation, naturally putting pressure on the yen. At the same time, the dollar benefits from safe-haven inflows, further strengthening the trend of the yen weakening. This is in contrast to January of this year, when the decline in the yen seemed to be more driven by positioning and speculative momentum. Japanese officials have repeatedly emphasized that they are concerned with excessive volatility rather than defending a specific exchange rate level. In a report released on Wednesday, JPMorgan strategists wrote: "Compared to January, the motivation for US officials to conduct a currency check may be lower. Given that the recent rise in the USD/JPY exchange rate has been driven by the overall strength of the dollar, even if the exchange rate reaches the 160-plus range, it may be difficult to provide legitimate reasons for intervention." They maintained a medium to long-term target for the USD/JPY exchange rate at 164. Last month, the yen briefly found support when Japanese Prime Minister Kishida Fumio won a landslide victory in the lower house elections. However, after reports in the media indicated that she was cautious about further rate hikes and appointed two doves to the Bank of Japan's policy board, the yen weakened again. Japanese Finance Minister Kato Kozo reiterated earlier this month that the government may take action to contain excessive exchange rate volatility, including direct market intervention. It is worth mentioning that more than a third of economists surveyed believe that the Bank of Japan is expected to keep its policy unchanged next week and may raise the benchmark interest rate in April. According to a survey conducted from March 5 to 10, all 51 economists predicted that the Bank of Japan, led by Governor Kuroda Haruhiko, would keep the borrowing cost unchanged at 0.75% after a two-day meeting ending next Thursday. The proportion of economists expecting a rate hike in April jumped from 17% in the last survey two months ago to 37%, with about two-thirds of them believing that April is the earliest possible month for a rate hike. Before the US and Israel launched attacks on Iran at the end of last month, overnight index swap pricing in the markets indicated that the likelihood of a rate hike in April was about 68%, after officials made a series of hawkish comments and some economic data exceeded expectations. The survey results show that many believe that despite the conflict, the Bank of Japan will continue with its policy normalization plans as scheduled. The escalation of the Middle East conflict caused oil prices to surge earlier this week, and despite some retracement, supply concerns continue to cause volatility in the energy markets. Many respondents stated that while rising oil prices may weaken the economy, it could also stimulate inflation expectations in line with current economic developments and the Bank of Japan's expectations. Ryutaro Kono, Chief Japan Economist at BNP Paribas in Paris, wrote in a survey response: "If economic prospects do not deteriorate, Kuroda is likely to reiterate his intention to raise rates at the post-meeting press conference. As long as the situation in the Middle East stabilizes, the basic expectation is for a rate hike in April." In addition to the dynamics of the Middle East situation and inflation, the views of Kishida Fumio are also crucial for the Bank of Japan, especially considering her consistent support for monetary stimulus policies. Last month, the Kishida government nominated two scholars advocating for inflation, Toichiro Asada and Ayano Sato, to serve as new board members of the Bank of Japan. About 80% of economists believe that these two appointments clearly indicate Kishida's inclination to slow down the pace of rate hikes. However, analysts are divided on whether the new members will slow down the rate hike pace of the nine-member committee, with 43% believing they will and 45% believing they will not. Economists also pointed out that if Kishida intervenes in the Bank of Japan's policy discussions with the intention of slowing down the monetary normalization process, the yen may weaken. More than half of the respondents said that it would be difficult for Kishida to prevent the Bank of Japan from raising rates, as doing so could lead to a depreciation of the yen, which has exacerbated inflation over the past few years, putting pressure on households.