The yen rebounds and breaks through 156, facing a watershed, as government intervention window and long-term depreciation pressure compete.

Market Rapid Shift, Yen Experiences Rollercoaster

On December 23, the foreign exchange market underwent a dramatic change. After recent unilateral depreciation, USD/JPY suddenly rebounded and broke through the 156 level. Behind this turn is a strong signal from Japan’s financial authorities—Finance Minister Shunichi Suzuki publicly stated he has “discretion to take bold actions,” while Deputy Minister Masamura Jun explicitly said the government will take “appropriate action against excessive volatility.” These statements quickly altered market expectations, prompting traders to reassess the downside potential of the yen.

Looking back, on December 19, due to the dovish rate hike decision by the Bank of Japan, USD/JPY surged to a high of 157.76. But once signals of government intervention appeared, the market immediately adjusted its pricing logic, halting the yen’s depreciation momentum.

Liquidity Window Becomes a Key Variable for Intervention

Will the government actually intervene? This question has become a focal point at year-end. StoneX senior analyst Matt Simpson believes that if Japanese authorities intend to intervene, the liquidity vacuum from Christmas to New Year’s is the best opportunity—fewer market participants mean that interventions of the same scale can have the greatest market impact.

However, he also notes that the current environment differs from 2022. That year, market volatility was more intense, and traders seemed to be “pressuring” the Ministry of Finance to act. This time, unless the yen breaks through the psychological threshold of 159, intervention may not be urgent. This suggests the government might adopt a wait-and-see approach, holding off until more extreme volatility occurs.

Long-term Depreciation Logic Amid Disjointed Rate Hike Cycles

Beyond short-term intervention expectations, a deeper issue is the long-term pressure driven by the Japan-US interest rate differential. Charu Chanana, Chief Investment Strategist at Saxo Bank, points out that the slow pace of BOJ rate hikes contrasts sharply with the Fed’s potential easing in 2026, which means the yen is unlikely to continue weakening unilaterally and is more likely to fluctuate within a range. When US Treasury yields decline or risk appetite shifts, the yen will have breathing room.

This logic also applies to other currency pairs. Take the CAD/USD as an example—the interest rate differential environment is shaping its trend, and the differing expectations of central bank policies directly influence trading strategies.

2026 Rate Hike Timeline Sets Exchange Rate Ceiling

The market generally expects the Bank of Japan to raise interest rates again in the second half of 2026, but predictions about the exact timing vary. Former BOJ policy board member Seiji Sakurai believes the next rate hike window will be in June or July next year, while Sumitomo Mitsui Banking Corporation’s chief FX strategist Hiroshi Suzuki forecasts the hike will be delayed until October 2026.

This timing difference is significant—if the hike is postponed, the yen’s depreciation pressure will last longer. Hiroshi Suzuki explicitly states, “Since there is still quite a bit of time before the rate hike, the exchange rate is prone to fluctuate toward yen depreciation.” His forecast suggests USD/JPY could depreciate to around 162 by Q1 2026. This means the current 156-159 range is just a transitional phase.

Conclusion: Government Intervention Provides Short-term Support but Cannot Change Medium-term Trend

Essentially, government intervention in Japan is mainly delaying the pace of yen depreciation rather than reversing the trend. The key risk lies in a scenario where US interest rates remain high for an extended period while the BOJ becomes cautious again. Markets should pay attention to Japan’s spring wage negotiations, which will influence the central bank’s inflation outlook. In the short term, the government may intervene during liquidity windows; in the medium term, the delay in the rate hike cycle will continue to support yen depreciation pressures.