Intervention becomes targeted market support, with the 155 level becoming the short-term "ceiling" for the yen?

Questioning AI · Why is Japan’s intervention difficult to reverse the yen’s weakness trend?

Japan has repeatedly intervened in the market, yet the yen struggles to break through the 155 level, highlighting the diminishing marginal effect of intervention. Relying solely on market support cannot lead the yen out of a sustained appreciation trend.

After multiple suspected interventions by Japan, the USD/JPY exchange rate has failed to break and stabilize above the 155 mark. Each significant rebound exhausts momentum before reaching that level, then retraces gains. Although Japan has ample foreign exchange reserves to continue intervening, the exchange rate trend shows solid dollar buying pressure, and official actions alone are insufficient to reverse the overall yen weakness.

The current macro fundamentals still favor a strong dollar overall. Even with easing expectations for the Iran conflict, energy prices remain high. However, the Bank of Japan still has over a month before any potential rate hike, and the Fed’s rate cut timing is not imminent. The persistent JPY-USD interest rate differential continues to support a strong USD/JPY.

OCBC Bank strategist Moh Siong Sim and others stated in a research report: “The key question is whether the Ministry of Finance will continue defending the yen exchange rate or has already used enough ammunition.” They also pointed out that market interventions alone are unlikely to reverse the large downward trend of the yen.

Japan’s government has not officially confirmed intervention actions, but sources confirmed that authorities entered the market when the yen broke the critical psychological threshold of 160 on April 30. Based on BOJ account analysis, the scale of this intervention was about $34.5 billion.

Traders generally believe that the exchange rate movements on May 1, May 4, and May 6 all show typical signs of central bank yen purchases.

The first intervention occurred when USD/JPY hit 160.72. Subsequent suspected interventions pushed the rate down to a 10-week low of 155.04, but it quickly rebounded. By Thursday afternoon in Asia, USD/JPY traded around 156.34, never effectively breaking below 155.

JPMorgan strategist Ikue Saito bluntly said: “Clinging to the USD/JPY 160 level is a weak strategic move, which could invite concentrated short-selling pressure from the market.”

Looking back at 2024, the yen once fell to 160.17. The Japanese authorities repeatedly bought yen that year, spending about $100 billion in total, and increased intervention at levels such as 157.99, 161.76, and 159.45.

While the authorities’ ammunition remains ample, the marginal effectiveness of intervention continues to weaken.

Goldman Sachs analysts estimate that, based on recent intervention scales, Japan’s current foreign reserves are sufficient to support up to 30 similar-sized interventions, indicating ample capacity for action.

Japan’s top foreign exchange official, Jun Murasumura, stated on Thursday that Japan is fully prepared to respond to speculative volatility in the currency market; he also emphasized that IMF rules do not restrict the frequency of interventions.

Despite ample ammunition, the effectiveness of interventions has clearly diminished. State Street Global Advisors senior fixed income strategist Masahiko Loo said: “Market increasingly views interventions as targeted market support actions, and their efficacy is waning.” He added, “Unless the Bank of Japan follows up with consecutive rate hikes and corrects its policy lag, the yen is likely to remain weak in the short term.”

Overall, while Japan has sufficient reserves and policy willingness to intervene continuously, multiple constraints—such as the fundamentals of the dollar, the JPY-USD interest rate differential, and market speculation—make it difficult for the yen to break out of a sustained appreciation trend solely through official support. The 155 level remains a strong short-term resistance that is hard to breach.