There has been no shortage of news on the Japanese yen recently—especially regarding the exchange rate—so the developments there are definitely worth watching. Last month, the Bank of Japan’s interest rate decision was released. As expected, there was no rate hike, and the rate was maintained at 0.75%, matching what the market had widely anticipated in advance. That said, what’s interesting is that the overnight index swap market indicates that bets on a rate hike this month have already fallen to below 10%, while the probability of a rate hike in June has jumped to around 70%.

When it comes to the reasons behind the yen’s depreciation, the geopolitical factor of the Iran-U.S. conflict cannot be ignored. Oil prices have stayed high, which directly threatens Japan’s economic outlook, given how heavily Japan depends on Middle Eastern energy imports. At the same time, the surge in oil prices has also increased inflation pressure in Japan. Analysts say that at the meeting, central bank officials may significantly raise their inflation forecasts, but at the same time, they will likely lower their economic growth forecasts. Interestingly, while Bank of Japan Governor Ueda Kazuo announces that it will hold steady, he may also release hawkish remarks—aimed at supporting the yen.

Speaking of the yen exchange rate, things are genuinely a bit risky right now. The USD/JPY once approached the 160 level. Japan’s Finance Minister Okayama Otsuki issued the toughest warning, saying that the Japanese authorities are maintaining close, around-the-clock communication with the United States and are prepared to intervene in the market at any time. But frankly, the market generally believes that relying on intervention alone makes it difficult to fundamentally reverse the trend; at most, it can temporarily slow the pace of depreciation and help form a short-term bottom.

Kouji Fukaya of Japan Market Risk Advisory said that the future direction of the Iran situation is hard to predict, but the yen could very well fall below 160 yen. More pessimistically, Hiroshi Namioka, Chief Strategist at T&D Asset Management, said that if the central bank does not raise rates in April, the yen could depreciate to around 163 against the U.S. dollar. For investors, all of these news items are risk signals that need to be closely tracked.