The recent moves by the Bank of Japan have left people a bit baffled. On April 28, it kept interest rates unchanged at 0.75%, which was broadly in line with market expectations—but the key point was the wording used by Governor Ueda at the press conference. He said that if risks of upward inflation or a downturn in the economy are limited, they could consider raising rates, which sounds rather hawkish, but the market doesn’t seem to have bought it.

At the time, the USD/JPY briefly fell below 159, suggesting that the yen exchange rate might be turning around. So what happened? Governor Ueda did not explicitly mention a June rate hike, and USD/JPY immediately rebounded to 159.65. This kind of rise-then-fall pattern reflects the market’s confusion about the central bank’s true intentions.

Judging from the central bank’s statements, they are indeed adjusting expectations. Inflation expectations have been raised significantly, while the forecast for economic growth has been lowered quite sharply—driven by concerns about the situation in the Middle East. Of the nine members, three advocated for a rate hike, showing that internal views are not fully aligned. This disagreement alone hints at the complexity of the decision-making process.

So what is the market’s current consensus? Overnight index swaps show that the probability of a June rate hike is about 65%. Strategists at Sumitomo Mitsui Banking Corporation believe that if the situation in the Middle East eases, the central bank may raise rates further between June and July. But that “if” is crucial—external uncertainty remains high.

The key pressure point for the yen exchange rate is around 160. Japan’s Finance Minister Kabayama Akiuki has already issued tough remarks, saying that they will intervene in the currency markets around the clock for 24 hours. This is not just bluster; strategists at Saxo Bank point out that intervention risk could curb the expansion of yen short positions. National Australia Bank’s outlook is even more specific, saying the intervention threshold may be higher, and that the final line of defense could be around 162.

To keep the yen exchange rate rising steadily, more clear evidence is needed that the central bank is willing to keep tightening policy despite external uncertainty. The current situation is a tug-of-war: on one hand, the market is expecting rate hikes; on the other hand, the authorities are prepared to intervene to prevent the yen from weakening too much. This standoff is likely to continue. In the short term, 160 is a psychological level, and the odds of a breakout are not low—but the threat of government intervention is enough to create volatility. In the long run, it still depends on how the situation in the Middle East and the global economic outlook evolve.