Not only interventions... Review of the situation around Jena
The Japanese yen remains under sustained pressure, despite attempts to curb currency weakening through foreign exchange interventions. The fundamental background for the yen remains negative, and the market clearly reflects this.
On the macroeconomic front, the situation has not improved. The Bank of Japan left the interest rate at 0.75% at its last meeting, which in itself was not a surprise. However, a key signal was the change in tone of BOJ Governor Ueda – he adopted a less hawkish stance and admitted that he does not know how long it will take to determine the timing of the next rate hike. Three committee members voted for a hike, but this did not change the overall direction. Ueda noted that core inflation is expected to be around 2% from the second half of 2026, but is currently slightly below the target level.
Fresh data confirms this. Core inflation in Japan fell to a four-year low in April. The Tokyo consumer price index, which usually precedes the national figure, also showed further cooling. Until inflation stabilizes consistently above 2%, the Bank of Japan has no clear basis for aggressive rate hikes, which continues to put pressure on the yen.
In the currency market, Japanese authorities seem to have paused active interventions after a large-scale operation in late April - early May. According to Bank of America estimates, the volume of suspected interventions amounted to about 10 trillion yen, equivalent to approximately 63 billion dollars. Despite this, the USDJPY pair continues to recover lost ground, gradually approaching the 160 level, which the market considers a critical threshold for the resumption of more aggressive intervention.
Bank of America revised its stance on the yen from bearish to neutral and lowered its USDJPY forecast for the end of 2026 from 157 to 152. This is a significant shift from one of the most consistently bearish voices on the yen in the market. At the same time, BofA clearly identified three catalysts needed to transition to a full-fledged bullish stance on the yen: the USDJPY pair reaching 160, which will almost certainly trigger a decisive escalation of interventions; 10-year Japanese government bond yields approaching 3%, which would mean a fundamental reassessment of Japanese interest rates and capital inflows into yen-denominated assets; and Brent crude falling below $90 per barrel, which would significantly reduce Japan's energy import bill – one of the constant structural factors putting pressure on the country's current account.
It is worth noting that BofA also points to an improvement in structural indicators that are often overlooked by the market, which focuses on interest rate differentials. The narrowing gap between deposits and loans in the banking system, rising real interest rates as inflation gradually increases, and noticeably better dynamics of the Japanese stock market compared to the US and European markets — all these are factors that can eventually attract capital back to yen-denominated assets.
The interest rate differential between Japan and the US remains the main structural barrier to the strengthening of the yen. On the American side, the Fed is gradually moving away from an accommodative stance: more and more FOMC members are talking about the need to keep all options open, and the minutes of the last meeting showed that many would already prefer to remove the accommodative bias from the statement. If the Federal Reserve is forced to raise rates amid sustained inflation, the differential will widen even further, which will further intensify pressure on the yen.
Thus, the fundamental background for the yen remains negative. Interventions can temporarily curb the weakening, but do not eliminate its causes. Key levels to watch are 160 for USDJPY and 3% for 10-year JGB yields. Any of these two values, reached in the coming months, will be a turning point for the yen's market dynamics.