I recently noticed the trend of the USD/JPY exchange rate, and it’s quite interesting. In mid-May, USD/JPY surged straight to 157.95, climbing for four straight days. The key point is that this level has already pushed Japanese authorities to the point where they may feel unable to stay idle—so the market is speculating about whether they will intervene again.

In fact, the logic behind the yen’s depreciation is quite clear. The U.S.-Japan interest rate differential is the most direct driver: U.S. rates are stuck between 3.5% and 3.75%, while Japan’s are only 0.75%, leaving a spread of nearly 3 percentage points. With such a large arbitrage opportunity, funds naturally go on a frenzy of selling yen. On top of that, the situation between the U.S. and Iran has driven crude oil prices soaring, boosting global inflation. The market now expects the Federal Reserve to not cut rates throughout 2026, which further reinforces the logic behind the dollar’s rise.

Japan also faces its own difficulties. As an economy that is highly dependent on energy imports, when crude oil gets more expensive, it has to spend more. At the same time, expectations for a wider trade deficit make the yen even easier to sell off. This is not just short-term fluctuation, but structural pressure.

From the perspective of historical intervention, Japanese authorities have actually taken quite a number of actions. At the end of April, USD/JPY fell from over 160 back to the mid-155s, and in early May, it was pulled back from the high-157s to the mid-155s. You can see Japan’s influence behind both moves. The current line of defense has been lowered from around 160 to 158, which indicates they are gradually retreating. Citigroup’s research and estimates suggest that if they truly use foreign exchange reserves down to historical lows, the “intervention ammunition” could be as high as 300 trillion yen—an enormous figure.

The problem is that intervention can only temporarily distort supply and demand. The Nomura Research Institute’s analysis also points this out. If the structural issues that are causing the yen to keep depreciating—such as the interest rate differential and energy dependence—are not addressed, then having USD/JPY reach 160 could become the new normal, and the effectiveness of intervention would become increasingly limited.

From the dollar’s perspective, given that inflation, interest rates, and economic growth all provide support, the dollar has indeed entered an upward channel. So for the USD/JPY pair, in the short term, it may continue to probe higher levels. It’s worth continuing to watch the stance of Japanese authorities and the market’s expectations for the next round of intervention.