The Japanese Yen has hit a new low again. Last week, the Bank of Japan's "dovish" actions disappointed the market, and this week, during a period of thin liquidity, USD/JPY directly broke below the 160 level, something that hasn't happened since 1990. As of the time of writing, the quote is 159.35, which is honestly a bit frightening.

According to various analysts, the current decline of the Yen has become quite disorderly. Strategists at Société Générale in France pointed out that unless Japanese policymakers act quickly—either through intervention or raising interest rates—the recent surge in USD/JPY could overshoot. Pepperstone’s head of research bluntly stated that Japanese authorities must act promptly, or there’s a risk of a credit crisis.

But here’s the problem—relying solely on intervention cannot solve the huge interest rate gap. The US-Japan interest rate differential is still there. With US yields so high, why would investors give up? Although the Bank of Japan has moved rates out of negative territory, it’s still far from enough. Moreover, according to data from the Commodity Futures Trading Commission, hedge funds and asset managers are betting heavily against the Yen, reaching record highs in short positions.

Interestingly, traders generally don’t believe Japan’s intervention will succeed. Weston put it well: although shorting the Yen now carries risks, those bearish speculators are likely waiting for the government to act, then buying back at even lower prices. In other words, the 1990 low in the Yen exchange rate is just the beginning; the real volatility may still be ahead.