Key Points

• Driven by the strengthening US dollar, the Japanese yen is approaching the 160 level.
• Tokyo issues another warning after a record 15.4 trillion yen intervention
• Rising yields in the United States continue to increase pressure on the Japanese currency

With the US dollar strengthening significantly, the Japanese yen fell to 160 yen per dollar on Thursday (November 12), prompting Tokyo to issue another warning after just three months ago it had used a record amount of 15.4 trillion yen to defend its currency.

The US dollar rose to 159.94 against the Japanese yen at one point during trading, hitting a new high in over two months. Strong inflation data from the United States and increasing market expectations for the Federal Reserve to raise interest rates drove up the dollar. Official exchange rate data from the Bank of Japan showed that the trading range for this rate during Tokyo session was between 159.49 and 159.93.

Japan's chief foreign exchange official, Jun Mitamura ( Atsushi Mimura ), warned that recent exchange rate fluctuations have become too rapid and reminded investors that the government is willing to intervene.

Japan's 15.4 trillion yen intervention failed to provide lasting support

According to official records released by Japan's Ministry of Finance on November 9, during three operations from July 30 to August 3, Japan spent a total of 15.3993 trillion yen to buy Japanese yen and sell US dollars.

The largest intervention occurred on July 30th, with the authorities deploying approximately 7.98 trillion yen. On July 31st, another operation of about 5.55 trillion yen was carried out, followed by the final round of intervention on August 3rd, which amounted to around 1.87 trillion yen.

This substantial expenditure helped the Japanese yen reverse its trend, which had previously fallen to 164, a level that brought it close to its weakest point in about forty years.

Japan also engaged in a rare joint intervention with Washington, which was the first time since 1998 that there has been coordinated support for the Japanese yen.

Although these actions briefly pulled the exchange rate back to around 155 yen per US dollar, most of the rebound has disappeared.

This intervention has also drawn attention to Japan's foreign exchange reserves. Previous doubts about whether the US Treasury Department was involved have highlighted the scale of funds required to defend a country's currency under ongoing international market pressure.

Why is the Japanese yen weakening again?

The latest round of decline in the Japanese yen reflects an widening divergence in monetary policies between the United States and Japan.

After inflation in the United States exceeded expectations, the market is pricing in a 91% probability of a Fed interest rate hike in December. Meanwhile, the yield on 10-year U.S. Treasury bonds has risen above 5%, further enhancing the attractiveness of dollar assets.

Higher yields on U.S. Treasury bonds have increased the relative attractiveness of holding dollars, while Japan's lower interest rates continue to support carry trades financed in yen.

Japan is also facing inflationary pressures domestically. The import price index, denominated in yen, rose by 24.8% year-on-year in October, making the cost impact of the depreciation of the yen on consumers and businesses increasingly significant.

This situation contrasts with the rebound of the Japanese yen after it fell below 155 in February. At that time, market expectations for the Bank of Japan to tighten its policies increased, providing support for the yen.

USD/JPY outlook: Will Japan intervene above 160?

160 has become an important psychological threshold, yet the Japanese authorities have not explicitly set it as a trigger point for automatic intervention.

If the exchange rate continues to stay above 160, the pressure on Tokyo may increase, especially as the weakening yen continues to drive up import costs and inflation.

However, to successfully maintain the exchange rate, it may not be enough to simply buy Japanese yen. Previous intervention actions have shown that once the initial market disturbances subside, the exchange rate could quickly rebound again.