Intervention effect "all back to zero"! The Japanese yen approaches a 161-retracement after the intervention, signaling the Japanese government's readiness for "action at any time".

The Japanese government's top spokesman stated on Thursday that authorities are prepared to respond appropriately to exchange rate fluctuations at any time. As the yen weakens again, the market is closely watching whether the Bank of Japan will intervene again to support the pressured currency. When asked about the yen's decline, Japanese Chief Cabinet Secretary Minoru Kihara said at a regular press conference, "We are prepared to respond appropriately to the foreign exchange market when necessary." He also pointed out that while the depreciation of the yen benefits manufacturing exports and boosts business profits, it increases the burden on businesses and households by raising import costs. The government needs to "comprehensively examine" these impacts and emphasized that it will closely monitor market dynamics. This statement comes as the US dollar is strengthening across the board. Market expectations for the next move by the Federal Reserve to raise interest rates rather than lower them are heating up, pushing the dollar higher and putting pressure on the yen. On Wednesday, the yen against the dollar fell to 160.795, hitting a new two-year low, completely erasing all the gains made by Japanese authorities after their intervention on April 30th. On Thursday, the yen was trading around 160.76. The Bank of Japan raised interest rates to 1% on Tuesday, the highest level in 31 years, but this has hardly provided support for the weak yen. Currently, Japan's policy interest rate is only 1%, far below the Federal Reserve's target range of 3.50%-3.75%. Japanese Finance Minister Okatsuki Katayama warned last week that authorities are "prepared to take decisive measures at any time." However, Deputy Minister of the Ministry of Finance in charge of international affairs, Atsushi Mimura, has not made any public comments on the yen since Tokyo launched large-scale interventions in early May. Data shows that Japanese authorities used a record 11.7 trillion yen (approximately $728.7 billion) in interventions in late April to early May to support the yen, but the effects were short-lived - the yen has since completely erased all the gains made from the intervention. Interest rate differentials continue to put pressure The Federal Reserve maintained interest rates on Wednesday, but signaled a possible rate hike later this year due to rising inflation concerns. This policy orientation is not good news for Japan - the continuous weakening of the yen is pushing up import costs, exacerbating domestic price pressures. Energy shocks caused by Middle East geopolitical conflicts have raised fuel costs, prompting the Bank of Japan to warn of the risk of falling behind the inflation curve. Seisaku Kameda, former Chief Economist of the Bank of Japan, said, "The biggest change in the Bank of Japan on Tuesday was that it explained the reason for raising interest rates as a precaution against falling behind the curve, rather than as a result of progress towards achieving Japan's price target." He is now an economist at the Japan Research Institute of Loss and Guarantee and believes that if the situation in the Middle East continues to ease and drag down oil prices, the urgency for the Bank of Japan to raise interest rates may decrease, "but the central bank may still raise rates again in October or December." However, the prospect of further interest rate hikes by the Bank of Japan has done little to dispel market pessimism towards the yen. Futures data released on Friday showed that speculative yen net short positions had climbed to their highest level since July 2024. Ataru Okumura, Senior Interest Rate Strategist at Sumitomo Mitsui DS Securities, pointed out in a research report, "The key driver for the yen's accelerated weakening has always been the significant widening of interest rate differentials between domestic and foreign monetary policies." He believes that due to intermittent intervention by authorities, the US dollar against the yen is unlikely to significantly break through the 160 level, "but authorities also realize the unsustainability of the current situation, and the Bank of Japan may be forced to raise rates slightly earlier than expected."