Yen exchange rate rebounds over 156, is the Japanese government really going to take action?

Exchange Rate Volatility, Official Statements Frequent

The Japanese yen exchange rate has recently undergone a major turnaround. The USD/JPY, which had been depreciating steadily, started to rise around December 23, breaking through the 156 level. What is driving this change? The shift in official Japanese government stance.

Finance Minister Shunichi Suzuki and Deputy Finance Minister Masamura Jun have consecutively made statements implying that the government is prepared to take action. Their wording is very similar—they describe recent exchange rate fluctuations as “violent and one-sided,” and indicate that the government will intervene in cases of “excessive volatility.” Once these remarks were made, the market reacted immediately, and yen bears began to retreat.

Looking back at previous trends makes this clearer: on December 19, USD/JPY rose to 157.76, shortly after the Bank of Japan had just signaled a dovish rate hike, and the market was generally bearish on the yen. In just a few days, sentiment suddenly shifted—this is the power of policy expectations.

Is the Christmas period the best window for intervention?

Interestingly, analysts are discussing a detail: will the Japanese government choose to act during the Christmas to New Year period?

Senior analyst Matt Simpson from StoneX pointed out that liquidity is already thin during this period, and if the government intervenes now, the effect could be amplified. However, he also set a threshold—unless the yen falls below 159, the authorities might not take real action. He even compared it to 2022, when market volatility was more intense, and traders were almost forcing the government to intervene, whereas the current atmosphere is clearly less urgent.

Future Direction of the Yen: Range-bound Fluctuations as Main Theme

What’s next? Charles Chanana, Chief Investment Strategist at Scotiabank, offers a new perspective: rather than a one-sided weakening of the yen, it’s more like it has entered a “range-bound mode.”

Why? Because the Bank of Japan’s rate hike cycle is very slow, and the Federal Reserve may remain accommodative until 2026. Although this interest rate differential will tend to weaken the yen, it won’t cause a continuous plunge. When U.S. Treasury yields fall or market risk appetite shifts, the yen could actually strengthen. The only major risk is: if U.S. interest rates stay high for a long time and the Bank of Japan remains conservative.

The Next Rate Hike by the Central Bank Is Critical

When will the Bank of Japan next raise interest rates? This question has sparked intense debate among analysts.

Bank of Japan Monetary Policy Committee member Makoto Sakurai is optimistic, predicting a rate hike around June or July next year. However, Sumitomo Mitsui Banking Corporation’s chief FX strategist Hiroshi Suzuki is more cautious, believing the next hike might not come until October 2026.

Suzuki emphasizes that since a rate hike is still distant, downward pressure on the yen will persist. He even forecasts that by Q1 2026, USD/JPY could surge to 162. In other words, if the central bank delays action, there is still room for the yen to depreciate further this year.

In summary: the yen has been pushed higher in the short term by government statements, but the medium-term trend will mainly depend on the progress of the Bank of Japan’s rate hikes. Until then, volatility and range-bound fluctuations are likely to prevail.