Recently, I’ve been watching the Japanese yen market and found that the situation has somewhat reversed. The market originally expected the Bank of Japan to raise interest rates in April, but over the past few days, expectations have suddenly cooled— the probability of a rate hike has fallen from 50% to below 20% directly. It’s really quite unexpected.

The main reason is that the situation in the Middle East has deteriorated, driving oil prices to surge. Bank of Japan Governor Kazuo Ueda has also noted that higher crude oil prices would weigh on the economy, which makes a rate hike even more complicated. Cost-driven increases would push up prices, but the economy is also under pressure, leaving the central bank in a difficult position to decide. According to Reuters’ latest survey, economists now tend to favor delaying the rate hike, with June becoming a more likely timing instead.

Interestingly, the yen exchange rate has already been nearing 160. If the central bank really doesn’t raise rates this month, the yen could weaken further. Japanese Finance Minister Yukio Katayama recently warned that they are ready to intervene in the market to support the yen, but analysts believe that as long as U.S. interest rates remain high and carry trades continue, USD/JPY may still move toward 165. How long government intervention can hold up depends on how things develop going forward, and the exchange-rate volatility brought by this delay in yen rate hikes is definitely worth watching.