The recent rebound of the US dollar against the Japanese yen is indeed worth paying attention to. Since mid-May, USD/JPY has been rising steadily to around 157.95, and the continuous upward momentum has market participants speculating whether the Bank of Japan will intervene again. Honestly, the logic behind this move is quite clear.

Japanese authorities have indeed intervened multiple times in the foreign exchange market before. I remember at the end of April, USD/JPY jumped from over 160 directly down to around 155, and in early May, it fell again from over 157 to 155. Behind these sharp fluctuations, you can almost always see Japan’s influence. Currently, the market consensus is that Japan might lower its intervention threshold from around 160 to 158; once this level is touched, the probability of intervention becomes quite high.

Why is the yen under such strong depreciation pressure? There are two main reasons. First is the ongoing impact of interest rate arbitrage. U.S. interest rates remain at 3.5%-3.75%, while Japan stays at 0.75%, creating nearly a 3% interest differential that continuously prompts arbitrage traders to sell yen. Second, escalating tensions in the Middle East have pushed up crude oil prices, directly boosting global inflation expectations. The market now largely expects the Federal Reserve to keep interest rates unchanged throughout 2026. This provides strong support for the dollar.

From Japan’s perspective, its heavy reliance on energy imports means it is inherently vulnerable to rising oil prices. When crude oil becomes more expensive, import costs rise, trade deficits widen, and the depreciation pressure on the yen against the dollar naturally increases.

Regarding the future trend, Citigroup’s analysis is quite interesting. They estimate that if Japan uses its foreign exchange reserves to return to the lows seen between 2022 and 2024, the ammunition for intervention could reach as high as 30 trillion yen. However, Nomura Research Institute’s Toshiaki Muneie raised a practical concern: intervention only temporarily distorts supply and demand; it doesn’t address the root causes. If structural issues aren’t resolved, USD/JPY surging past 160 could become the norm.

From a global macro perspective, Rockefeller’s analysts believe that in an environment of high inflation, rising interest rates, and resilient economic growth, the dollar will enter an upward trend. In such a context, it is almost certain that the yen against the dollar will continue to strengthen. Therefore, in the short term, Japan’s interventions may only delay rather than reverse this trend.