The recent trend in the yen exchange rate is certainly worth paying close attention to. In late April, the Bank of Japan once again held rates unchanged, keeping interest rates at 0.75%. Although this is in line with market expectations, three members of the committee argued for a rate hike, which to some extent reveals internal differences within the central bank.

What’s interesting is that the central bank also adjusted its outlook by raising inflation expectations and lowering its economic growth forecast, showing that they are worried about the situation in the Middle East. At the press conference, BOJ Governor Kazuo Ueda also hinted that a rate hike is not out of the question if inflation risks rise or if the risks to the economy on the downside remain contained.

After the decision was released, the US dollar initially rose against the yen, but then it slipped back. At present, the level that the market is most focused on is 160—a threshold that has been approached on numerous occasions. Japan’s Finance Minister, Satsuki Katayama, has repeatedly warned that it is ready to intervene in the currency markets at any time within 24 hours, which has also become an important support behind the yen’s rebound.

Judging by analyses from major banks, strategists at Sumitomo Mitsui believe that if the situation in the Middle East eases, the Bank of Japan is likely to raise rates further in June or July. Data from overnight index swaps also supports this view, with the market pricing in roughly a 65% chance of a rate hike in June. Strategists at Saxo Bank pointed out that around 160 remains the main pressure point, and that the risk of intervention by Japanese authorities may limit any further expansion of yen shorts.

However, the National Australia Bank’s view is that the intervention threshold for Japanese authorities will keep getting higher, and the true final line of defense may be around 162. For the yen to continue strengthening, clearer signals are still needed to show that the central bank is willing to keep tightening monetary policy amid external uncertainties. For now, it is simply a matter of waiting to see what the central bank decides next.