People closely watching the yen exchange rate should have noticed that the USD/JPY has been repeatedly tugging around the 160 level, and Japan’s authorities could step in with intervention at any time. After the Bank of Japan meeting ended on April 28, interest rates were kept unchanged at 0.75%, but three members of the committee argued for a rate hike—an indication that is definitely worth paying attention to.

What’s even more interesting is that the central bank simultaneously raised its inflation expectations, while lowering its economic growth forecast, suggesting they still have some concerns about the situation in the Middle East. The central bank governor said they may consider raising yen interest rates if there are upside risks to inflation or if downward pressure on the economy is not significant. Overnight index swaps show that the market currently assigns about a 65% probability to a rate hike in June, so there is some expectation in the market.

From an exchange-rate perspective, 160 is a key level. Japan’s Finance Minister has already said they are prepared to intervene 24 hours a day, all-weather. Analysts at Saxo Bank believe that the risk of intervention may limit any further expansion of yen shorts. For the yen to keep rebounding, more explicit signals are still needed to show that the central bank is willing to continue tightening policy amid external uncertainty. National Australia Bank estimates that the authorities’ final line of defense could be drawn up around 162.

Overall, expectations for a yen rate hike are gaining momentum, but the exact timetable will depend on how the Middle East situation develops. If conditions ease, strategists at Sumitomo Mitsui Banking Corporation expect the central bank to further raise rates around June to July. In the short term, the 160–162 range should be the key area to watch.