I just noticed a pretty interesting shift in the market: within a week, the probability of the Bank of Japan raising rates in April has fallen straight from 50% to below 20%, and the logic behind it is actually quite complex.

It was originally driven by a deterioration in the Middle East situation that sent oil prices soaring. Recently, Bank of Japan Governor Kazuo Ueda said that rising crude oil prices have worsened Japan’s trade conditions, putting downward pressure on the economy. Put simply, rate hikes would suppress the economy, but if the central bank doesn’t raise rates, it still has to deal with inflation pressure—so the central bank is caught in a dilemma. As a result, the market now generally believes that rate hikes may be pushed back to June. A recent Reuters survey shows that among economists, the proportions choosing April and June are now basically even, both at about 35–38%.

The impact on the yen exchange rate is therefore very direct. If the Bank of Japan doesn’t act in April, the yen will continue to weaken, and USD/JPY is already nearing the key level of 160. Analysis from Mitsubishi UFJ Morgan Stanley Securities suggests that once the Bank of Japan keeps rates unchanged in April, pressure on the yen will become even stronger. What’s interesting is that recently, after meetings with U.S. Treasury Secretary Bessent, Japan’s Finance Minister Kōichi Katayama stated that Japan is prepared to take bold action to support the yen. That sounds like a hint that government intervention may be coming soon.

However, from a technical perspective, as long as U.S. interest rates remain high, energy prices continue to support the dollar, and carry trades are still at work, the pressure on the yen exchange rate won’t ease. Some analysts even predict that USD/JPY could surge toward 165. So next, it’s important to closely watch the Bank of Japan’s April 28 rate decision, as it will directly affect the yen exchange rate’s next move. If the central bank really chooses to delay rate hikes, government intervention may indeed be on the way.