The recent performance of the Japanese yen is definitely worth paying attention to. USD/JPY is once again edging toward the 160 level, and the logic behind it is actually quite interesting.

First, let’s talk about what’s changing on the central bank side. The market previously expected that there was close to a 50% chance of a rate hike in April, but recently that expectation has suddenly fallen to below 20%. Why? The main reason is that the deterioration of the situation in the Middle East has pushed oil prices sharply higher. While this will boost inflation data in the short term, it is also dragging down economic growth—making the decision to raise interest rates in Japan particularly awkward. Bank of Japan Governor Kazuo Ueda has also clearly pointed out that rising oil prices have worsened Japan’s terms of trade and are putting downward pressure on the economy.

According to Reuters’ latest survey, economists’ views on the timing of a yen rate hike have shifted noticeably. The share choosing April is 38%, while the share choosing June is 35%—basically unchanged. This suggests the market increasingly believes that a rate hike will be delayed until June. Analyst Junki Iwahashi at Sumitomo Mitsui Trust Bank also holds this view. He believes there’s unlikely to be a rate hike this month, and that June is the most appropriate time window.

What’s interesting is the reaction at the government level. After discussing with U.S. Treasury Secretary Besant, Japan’s Finance Minister Kaetsuki Katayama directly warned that the government is ready to take bold action to support the yen. The implication is that if the yen continues to depreciate, government intervention is not out of the question. Mitsubishi UFJ Morgan Stanley Securities also noted that if the Bank of Japan keeps interest rates unchanged in April, it would indeed further weaken the yen.

But in the long run, this situation may still be less than optimistic. As long as U.S. interest rates remain high, the Bank of Japan continues to carry out a relatively moderate yen rate-hike policy. Coupled with energy prices providing support and the existence of carry trades, the dollar will likely keep strengthening. Some analysts believe that in the future, USD/JPY could even climb toward 165. The government’s warnings about intervention sound forceful, but if fundamentals don’t change, it will be hard to truly reverse the trend. For now, it remains to be seen how the central bank and the government will work together to respond next.