The Japanese Yen exchange rate breaks through the 156 level, government intervention by the end of the year may become the norm

Policy Signals Behind the Rebound

The USD/JPY exchange rate saw a turning point on December 23. The statement by Japanese Finance Minister Shunichi Katayama broke the market silence—he publicly declared that he has the discretion to take “bold actions.” Deputy Finance Minister Jun Murao followed up, indicating that the government will take appropriate measures against excessive market volatility. Following these signals, the yen immediately halted its decline, with a noticeable intraday rebound.

The previous week, USD/JPY surged to a high of 157.76, closely related to the Bank of Japan’s recent dovish stance. The market generally interpreted this as an increased expectation of government intervention, suggesting that the unilateral downward trend of the yen might reverse.

Christmas Window: The Best Time for Intervention?

StoneX senior market analyst Matt Simpson offered an interesting observation: if Japanese authorities really intend to act, the liquidity-starved period from Christmas to New Year might actually be the most advantageous—the effects of intervention could be amplified.

However, Simpson also expressed reservations: “Unless the yen sharply breaks through the 159 level again, the government may not take real action. The more intense volatility in 2022 forced the Ministry of Finance to intervene, but the market hasn’t yet developed that sense of urgency.” This implies that government intervention may be more anticipated than actual.

Rate Hike Cycle Determines Long-Term Direction

Saxo Bank Chief Investment Strategist Charu Chanana highlighted a key point: Japan’s slow pace of rate hikes contrasts with the Federal Reserve’s potential easing policy in 2026, which means the space for unilateral yen depreciation is actually compressed, and range-bound fluctuations are more likely. When U.S. Treasury yields decline or global risk sentiment shifts, the yen could strengthen.

Chanana also warned of risks: if the U.S. maintains high interest rates long-term and the Bank of Japan becomes cautious again, the situation would be unfavorable for the yen. He recommends closely monitoring Japan’s spring wage negotiations, a key indicator.

Diverging Expectations for Next Year’s Rate Hikes

Market opinions on the timing of the Bank of Japan’s next rate hike vary significantly. Former BOJ Policy Board member Seiji Sakurai believes the window for raising rates to 1% could be in June or July 2026. However, Sumitomo Mitsui Banking Corporation Chief FX Strategist Hiroshi Suzuki’s forecast is much later—he expects the next hike to be pushed back to October 2026.

Suzuki’s logic is clear: with a long way to go before the rate hike, the yen faces downward pressure during this period. He even predicts USD/JPY could reach 162 in the first quarter of 2026. This view indicates that even with short-term government intervention, the medium-term downward trend of the yen remains difficult to change.

Market Outlook

The rebound in USD/JPY exchange rate is merely a short-term correction; the long-term pattern remains driven by interest rate differentials. Government intervention is a defensive measure rather than a means to reverse the trend. The pace of rate hikes in 2026 will be the key variable determining the yen’s trajectory. Investors need to balance policy expectations with the upcoming rate hike cycle.