Friends who have been keeping an eye on the currency markets recently should have noticed that the yen against the dollar has hit new highs again in the past couple of days. On May 14, USD/JPY jumped straight to 157.95, rising for four straight days, and the 158 level that is close to where the Japanese government might intervene is nearly within reach.

This phenomenon is actually not new. To look back: on April 30, USD/JPY fell sharply from 160.7 to 155.5, and on May 6 it dropped again from 157.9 to 155—behind both moves, you can clearly see the hand of Japanese authorities. Now the market is wondering whether Japan will step in again to lower the defense line from around 160 to 158.

So why has the yen against the dollar been depreciating persistently? There are two core reasons. First is the interest-rate differential. U.S. interest rates are currently between 3.5% and 3.75%, while Japan’s are only 0.75%, leaving a gap of about 2.9%. This huge interest-rate difference leads to arbitrage trades that continuously sell yen. Second is the energy issue. The conflict between the U.S. and Iran has pushed up crude oil prices, driving inflation higher. The market already expects that the Fed will not cut rates throughout 2026, which provides strong support for the dollar. Meanwhile, Japan is highly dependent on energy imports, and higher crude oil prices directly widen the trade deficit, making the yen naturally more prone to depreciation.

Can intervention work? Citibank research has estimated that if Japan uses its foreign exchange reserves down to the historical lows of 2022-2024, the total “ammunition” for this round of intervention could be as high as 30 trillion yen. That sounds like a lot, but Toshiaki Kineuchi of Nomura Research Institute puts it quite realistically: merely intervening to temporarily distort supply and demand cannot produce lasting effects. Unless Japan addresses the structural problems that are causing the yen to weaken against the dollar, USD/JPY touching 160 may become the norm.

From the dollar’s perspective, Rockefeller analysts believe that amid rising inflation, rising interest rates, and strong economic growth, the dollar is entering an upward channel. In this kind of broader environment, the dollar against the yen is likely to keep climbing as well. Therefore, short-term intervention may only delay things, and a true change in trend requires deeper shifts in the underlying economy.