"Don't Cross 160 Yen"... Is the Era of the Super-Weak Yen Ending? [Weekend Money]

Japanese Government Injects 5 Trillion Yen
Dollar-Yen Expected to Remain in the 155-156 Range
Implied U.S.-Japan Agreement on Exchange Rate

Recently, analysts have suggested that the Japanese yen is likely to enter a sustained strengthening trend, driven by the Japanese government's strong intervention in the market.

An employee is organizing Japanese yen and US dollars at the Hana Bank Counterfeit Prevention Center in Jung-gu, Seoul. Photo by Yonhap News Agency

According to iM Securities on May 9, the dollar-yen exchange rate has fallen by about 2.5% since reaching 160.41 yen on April 29, highlighting the yen's recent appreciation. This strengthening has been attributed primarily to the Japanese government's decisive market intervention.

Last week, the Japanese government conducted a direct intervention of approximately 5 trillion yen. There are increasing claims that Japanese Prime Minister Sanae Takaichi's 'super-weak yen' policy, pursued since October last year, has reached its limits. Additionally, the possibility of further interest rate hikes by the Bank of Japan and rising government bond yields have contributed to weakening expectations for continued 'super-weak yen', which had persisted until now.

There also appears to be growing caution in the United States regarding the weak yen. When the dollar-yen exchange rate approached 160 yen in January, U.S. Treasury Secretary Scott Bessent conducted what is known as a 'rate check'. A rate check refers to the authorities inquiring about the status of foreign exchange transactions with major banks before officially intervening in the forex market. At that time, the dollar-yen exchange rate rose to the 159-yen range in Tokyo's forex market on January 23, but then quickly dropped to the 155-yen range as rumors spread that U.S. authorities had conducted a rate check. Taken together, the events in January and the recent intervention suggest an implicit agreement between the U.S. and Japan on the acceptable level of the dollar-yen exchange rate, indicating they are unlikely to tolerate a yen depreciation beyond 160 yen.

Park Sanghyun, a researcher at iM Securities, stated, "The key issue is how far the dollar-yen exchange rate will fall, but the Japanese government is unlikely to tolerate a steep appreciation of the yen," explaining, "If the yen strengthens too rapidly, there is a significant risk that concerns over the unwinding of yen carry trades could materialize." He continued, "The dollar-yen exchange rate is expected to fluctuate around the 155-156 yen range for a considerable period, which should have a favorable impact on global financial markets," adding, "There is little risk of a large-scale unwinding of yen carry trades, and instead, the resulting weaker dollar could further enhance global liquidity flows."

This content was produced with the assistance of AI translation services.