Over the past week, the Japanese yen exchange rate has been sliding again. The USD/JPY pair has risen for 7 consecutive days and is on the verge of breaking above 159. Looking closely at the news, the Japanese government is considering an additional budget to address the increase in commodity prices driven by the situation in the Middle East, which has led the market to worry that Japan’s fiscal situation may become even tighter. Even the 30-year Japanese government bond yield has hit a fresh high of 4.2%, and with expectations of additional rate hikes from the Fed heating up, the U.S. dollar has become even stronger.

In this context, the market is speculating about when Japanese authorities will step in to intervene in the currency market again. Not long ago, in late April and early May, Japan did intervene once—USD/JPY jumped from above 160 and then dropped sharply to around 155. The Japanese Finance Minister also stated clearly that they are prepared to respond to foreign exchange fluctuations at any time. It appears Japan is still very concerned about the depreciation of the yen exchange rate.

However, the issue is that the global bond market is currently in such a severe sell-off, with U.S. Treasury yields continuing to rise, and Japan also needs to issue new bonds to support the additional budget, which is putting significant pressure on Japanese government bonds. Some analysts believe Japan has already moved close to a dangerous area for the global bond market. In the short term, the deterrence from official intervention may keep USD/JPY from easily breaking above 160, but to truly stabilize the yen exchange rate, intervention alone isn’t enough—Japan’s central bank also needs to actually follow through with rate hikes.

According to data from the swap market, the current probability of the Bank of Japan raising rates in June is about 77%. That should be an important signal for the yen exchange rate.