The Yen at 160 Threshold in Crisis! Japan Faces a Double Sell-off in Stocks and Bonds—Can BOJ Governor Ueda Kazuo Issue a Hawkish "Market-Saving Order"?

Reuters Finance APP notes that investors are highly alert to the possibility that the USD/JPY exchange rate may fall below the 160 level. On Thursday, ahead of the highly anticipated Bank of Japan interest rate decision, both Japanese stocks and government bond futures declined.

After Federal Reserve Chair Jerome Powell stated that the Fed would not cut interest rates again until inflation cools further, the yen temporarily fell 0.6% to 159.90, hitting its lowest level since July 2024. Additionally, due to strikes on key Middle Eastern energy facilities by Iran and Israel, crude oil prices also rose.

At press time, the Nikkei 225 index in Japan briefly dropped 2.9%, and bond futures fell as much as 44 ticks to 131.11. The 10-year government bond yield rose 4 basis points to 2.255%.

The market generally expects the Bank of Japan to keep its benchmark interest rate unchanged on Thursday, but traders will closely watch Governor Ueda’s press conference for any hints about the next steps. Rising oil prices and a weakening yen are fueling concerns about stagflation in Japan, which increases the likelihood of fiscal spending while complicating the central bank’s path toward normalizing monetary policy.

Strategist Mark Cranfield said: “Given that the market fully expects the BOJ to keep rates steady, any hopes of a stronger yen largely depend on Governor Ueda delivering sufficiently hawkish rhetoric — which he has not done in previous press conferences.”

Japan’s Finance Minister said Thursday that she is extremely concerned about recent currency fluctuations and added that authorities will do their best to respond at any time. However, strategists believe the threshold for intervention is high, as elevated oil prices and resilient US data have fundamentally supported the dollar, making it difficult for officials to justify intervention.

Nomura Securities Chief FX Strategist Yujiro Goto stated in a report: “The likelihood of the yen falling below 160 during the central bank meeting is quite high, especially considering tomorrow is a Japanese holiday. In the short term, focus will be on whether authorities will intervene.”