The 160 yen barrier is in trouble! Japan is facing a double blow to stocks and bonds. Can Bank of Japan Governor Haruhiko Kuroda summon a hawkish "market-saving decree"?

Investors are keenly aware that the Japanese yen may fall below the 160 level against the US dollar. On Thursday, ahead of the highly anticipated Bank of Japan interest rate decision, both the Japanese stock market and government bond futures fell. After Federal Reserve Chairman Powell stated that the Fed would not cut interest rates again until inflation cools down, the yen exchange rate briefly dropped 0.6% to 159.90, hitting its lowest level since July 2024. Additionally, crude oil prices rose due to exchanges of attacks between Iran and Israel on key energy facilities in the Middle East. As of the time of writing, the Nikkei 225 index in Japan fell by 2.9%, and government bond futures dropped by up to 44 ticks to 131.11. The 10-year government bond yield rose by 4 basis points to 2.255%. The market generally expects the Bank of Japan to keep its benchmark interest rate unchanged on Thursday, but traders will closely watch Governor Kuroda's press conference for any hints about future actions. Rising oil prices and a weakening yen are raising concerns in Japan about stagflation, which complicates the central bank's path to normalization while also increasing the possibility of increased fiscal spending. Strategist Mark Cranfield said: Given that the market fully expects the Bank of Japan to maintain interest rates, any hope for a stronger yen largely depends on Governor Kuroda making sufficiently hawkish remarks something he has failed to do in previous press conferences. Japan's Finance Minister stated on Thursday that she is extremely concerned about recent exchange rate fluctuations and added that the authorities would do everything possible to respond promptly. However, strategists believe that the threshold for intervention is high, as high oil prices and strong US data have fundamentally elevated the US dollar, making it difficult for officials to justify intervention. Yujiro Goto, Chief FX Strategist at Nomura Securities, stated in a report: "There is a fairly high chance that the yen will fall below the 160 level during the central bank meeting, especially considering that tomorrow is a Japanese holiday, with the focus in the short term on whether authorities will intervene."