Yen depreciation accelerates to 158! Central bank dovish remarks trigger increased intervention expectations

Foreign Exchange Market Experiences Significant Fluctuations, Multiple Currencies Under Pressure

Last week (12/15-12/19), the foreign exchange market remained relatively calm: the US Dollar Index rose by 0.33%, with major non-US currencies showing mixed movements. The euro declined by 0.23%, the yen fell the most by 1.28%, the Australian dollar dropped by 0.65%, and the British pound edged up by 0.03%. Behind these movements, there is a hidden re-adjustment of central bank policy expectations across countries.

Euro Fluctuates in Search of Bottom, Fed’s Future Policy Remains Uncertain

The EUR/USD exchange rate last week first rose then fell, ultimately closing down by 0.23%. Although the European Central Bank maintained interest rates as scheduled, President Lagarde’s remarks did not lean as hawkish as market expectations, disappointing bullish traders.

On the US data front, the November employment report was lukewarm, and CPI data came in below market expectations. Major investment banks like Morgan Stanley and Barclays pointed out that these data are significantly affected by seasonal adjustments and statistical distortions, making the true trend difficult to determine.

Currently, market forecasts for the Fed’s rate cuts in 2026 are quite consistent—expecting two rate cuts within the year, with a 66.5% probability of a cut in April.

Institutions like Danske Bank are optimistic about the euro’s medium-term performance. Their core logic is that as the Fed begins a rate-cut cycle while the European Central Bank remains on hold, the narrowing of the real interest rate differential will benefit the euro’s appreciation. Additionally, European asset recovery, rising demand for dollar hedging due to dollar depreciation, and adjustments in US economic growth expectations will also serve as potential supports for the euro.

This Week’s Focus: Release of US Q3 GDP data and geopolitical risks. An unexpectedly strong GDP will boost the dollar and pressure the euro; conversely, weaker data will favor the euro. On the technical side, EUR/USD remains above multiple moving averages, with short-term upside potential targeting the previous high of 1.18. If a correction occurs, support is seen at the 100-day moving average of 1.165.

Yen Plummets Against the Dollar, Signals of Government Intervention Frequent

The yen faces even greater pressure. Last week, USD/JPY increased by 1.28%, driven primarily by the Bank of Japan’s “dovish rate hike.”

Although the BOJ raised interest rates by 25 basis points as expected, Governor Ueda’s comments lacked hawkish intensity, disappointing the market. To make matters worse, the Japanese Cabinet approved a fiscal stimulus package worth 18.3 trillion yen, which directly offset the tightening effect of the rate hike. As a result, the yen continued to depreciate.

Market consensus predicts that the BOJ will cut rates at most once in 2026, with the next rate hike not expected until October. Sumitomo Mitsui Banking Corporation estimates that the yen could further weaken to 162 in the first quarter of 2026. This also implies that the yen against the Chinese yuan and other Asian currencies will face depreciation pressures.

However, JPMorgan Chase issued a warning: if USD/JPY breaks above the 160 level in the short term, it will be regarded as abnormal exchange rate volatility, significantly increasing the likelihood of official government intervention. Nomura Securities holds an opposite view, believing that under the Fed’s rate cut environment, the dollar faces depreciation pressure, and the yen’s downside is limited, with an expected appreciation to 155 in the first quarter of 2026.

This Week’s Focus: Follow-up comments from BOJ Governor Ueda and the trend of verbal interventions by Japanese authorities. Hawkish statements or escalated intervention rhetoric could push USD/JPY lower. Technical analysis shows USD/JPY has broken through the 21-day moving average, with MACD signaling a buy. If it stabilizes above 158, further gains are likely; if it faces resistance below 158, the risk of falling to 154 increases.

Key forex market themes this week: euro bottoming out, yen depreciation, Fed policy expectations, central bank intervention prospects. Investors should closely monitor speeches from the central banks of the three major economies and key economic data.