Japanese Yen Depreciation Approaches 160 Mark

The 160 Yen threshold has once again entered market focus.

Since March, amid U.S. and Israeli military strikes on Iran, the yen has weakened against the dollar, briefly touching 159.76 yen per dollar — the weakest level since Japan’s government intervention in the currency market in July 2024 — and has continued to hover below the 160 mark, which is widely regarded by the market as a warning line for Japanese government intervention. As of 5 p.m. Tokyo time on March 18, the exchange rate was 158.79 yen per dollar. After entering the European trading session, the yen depreciated further, briefly returning to the 159 level.

This situation also reminds the market of the currency market turbulence in 2024. Back then, after the yen fell below 160, Japan’s Ministry of Finance intervened with 5.5 trillion yen. However, compared to the summer of 2024, sources say that this round of yen depreciation is driven more by fundamental factors such as rising energy prices, increased safe-haven demand for the dollar, and Japan’s fragile trade structure.

Currently, the yen is under renewed pressure, and Tokyo’s options for response seem more limited than before, with policy intervention space significantly narrowed. Market attention is also shifting to the Bank of Japan — although most expect the BOJ to keep policy rates unchanged at this week’s monetary policy meeting, the complex macro environment, relatively loose monetary policy, and persistent yen weakness raise the question: will the window for future rate hikes be forced open earlier?

Market Trading: From “Safe-Haven Dollar” to “Energy Currency”

Amid ongoing turmoil in the Middle East boosting safe-haven buying of the dollar, USD/JPY briefly approached the 160 threshold.

“Much of this yen depreciation is driven by the impact of rising energy prices on fundamentals,” said Wang Xinjie, Chief Investment Strategist at Standard Chartered China Wealth Solutions, in an interview with 21st Century Business Herald on March 17. After the election of Shinzo Abe, Japanese stocks rose sharply due to aggressive fiscal stimulus policies, outperforming global markets year-to-date. Amid escalating tensions in Iran, soaring energy prices have increased inflation expectations in Japan, causing the Japanese stock market to underperform global indices since February 21. Additionally, Japan’s fiscal plans lack funding sources, leading to rising Japanese government bond yields. The yen has also declined amid capital inflows into the dollar for safe-haven purposes, reflecting not just speculative bearishness but also structural fundamental weakness.

Yoshida Takeshi, a researcher at the Japan Comprehensive Research Institute’s Macroeconomic Center, told 21st Century Business Herald that recent yen depreciation is driven by two main factors: one is geopolitical risk prompting “crisis-driven dollar buying (safe-haven demand),” and the other is Japan’s “fragile trade structure.”

“Tensions in the Middle East have led to a general strengthening of the dollar against major currencies, but for Japan, which relies heavily on Middle Eastern oil imports, this has pushed the yen weaker. Meanwhile, rising import prices have deepened concerns over worsening trade balances, amplifying yen selling pressure from a supply-demand perspective,” Yoshida said.

In contrast, the dollar has recently strengthened significantly. Lee Ferridge, Strategist at State Street, previously stated, “Institutional investors’ dollar buying has been the strongest in the past two years.”

Among G10 currencies, the yen and euro are the weakest performers, as markets generally believe these two are more sensitive to commodity price changes.

However, some resource-linked currencies show different trends. According to the latest data from the Commodity Futures Trading Commission (CFTC), compared to late February before Iran attacks, net long positions in currencies like the Australian dollar and Canadian dollar against the dollar have actually increased.

For example, as of February 24, speculative holdings of 52,000 contracts in AUD/USD; by March 10, this increased to 54,000 contracts. Similarly, net long positions in CAD/USD grew from 27,000 to 36,000 contracts.

吉田恒, Chief Forex Advisor at Monex Securities, pointed out in a report that this means, from the dollar’s perspective, the USD against resource currencies like AUD and CAD is being sold. “This indicates that the current market theme is less about ‘Middle East conflict’ and more about the energy supply uncertainties caused by the Strait of Hormuz risks,” Yoshida said.

Narrowing Intervention Space: 170 Yen Could Become a New Warning Line

As USD/JPY briefly approached 160, market expectations of “preparing for intervention” have emerged.

On March 17, the yen appreciated slightly in Tokyo’s forex market. The day before, Japan’s Finance Minister Shunichi Suzuki said that “we will respond with the utmost vigilance and are prepared to take decisive measures,” which was seen as a restraint on yen depreciation and prompted yen buying on the 17th. However, markets remain highly sensitive to Middle East tensions.

Most analysts believe current volatility has not yet reached the level that triggers intervention. Historical experience shows that Japanese authorities typically do not intervene at specific exchange rate levels but focus on deviations from long-term trends.

In 2022 and 2024, Japan’s government intervened multiple times to curb yen depreciation. The 2022 intervention occurred around 145 yen per dollar, while the 2024 intervention was near 160 yen.

“Even at the same 160 level, the current market environment differs significantly from 2024,” said a forex trader.

吉田恒 noted that past interventions usually occurred when USD/JPY deviated 20-30% from the five-year moving average and more than 5% from the 120-day moving average. Currently, even with the exchange rate approaching 160, the deviation from the five-year average is only about 15%. To reach a 5% deviation from the 120-day moving average, USD/JPY would need to approach 162. Based on this logic, USD/JPY might need to approach 170 or higher to more easily trigger Japanese authorities to re-enter the market.

Meanwhile, the current market structure is also very different from 2024. In July 2024, USD/JPY hit 161, a 38-year high since 1986. At that time, CFTC data showed speculative net short positions in yen approaching 180,000 contracts — near record highs. As of March 10, speculative net short positions were only about 40,000 contracts.

“From the futures market’s short positions, the current yen depreciation is far less speculative than in July 2024,” Wang Xinjie said.

Additionally, the dollar holdings are also markedly different from 2024. In April 2024, when USD/JPY first broke 160, net long dollar positions reached about 380,000 contracts, near record highs. This year, in February, the dollar was net short by 210,000 contracts at one point, and as of March 10, net short positions remained around 60,000.

吉田恒 believes that if speculative funds further expand their “sell yen, buy dollar” positions, even if Japan intervenes, it may be difficult to change the trend.

Yoshida also pointed out that unlike the 2024 summer interventions aimed at suppressing speculative positions and forcing liquidation, current yen selling pressure is more driven by trade balances and “real demand” factors. “In this supply-demand driven yen depreciation scenario, relying solely on forex intervention may not produce lasting effects,” he said.

Market analysts believe that today’s yen depreciation mainly reflects macro fundamentals, which weaken the justification for policy intervention. From the perspectives of policy effectiveness, international cooperation, and market structure, Japan’s Ministry of Finance’s “effective space” and “trigger threshold” for intervention are significantly more limited than during the 2022 and 2024 episodes.

“If Japan intervenes now, it could lead investors to open speculative short positions, greatly diminishing the effectiveness of intervention,” Wang Xinjie said. He believes that the key to reversing the yen’s depreciation lies in improving Japan’s economic resilience.

Bank of Japan Focus: Rate Hike Window May Be Brought Forward

Amid energy crises and shrinking intervention space, market attention is turning to the BOJ.

On March 17, the Reserve Bank of Australia raised its policy rate. This week, major central banks including the Fed, ECB, and BOJ will hold monetary policy meetings. Market consensus expects these central banks to maintain relatively hawkish stances amid inflationary pressures from rising energy prices.

吉田恒 noted that if the BOJ shows caution about further rate hikes at this meeting, the yen could continue to weaken relative to other currencies.

Particularly, attention should be paid to the ECB’s moves. He also warned that since the end of last month, the euro has fallen more against the dollar than the yen; if the ECB adopts a more hawkish stance to curb inflation, the relative strength of the euro versus the yen could reverse, increasing the risk of further yen depreciation against the euro and other cross currencies.

“The monetary policy meetings could actually increase the risk of USD/JPY breaking through 160,” said a market participant. “After the Fed, ECB, and BOJ meetings, the relative strength among the three currencies may form a pattern of ‘Dollar strongest, Euro second, Yen weakest.’”

Regarding the BOJ’s rate hike prospects this year, Wang Xinjie believes that the market still generally expects the BOJ to raise rates twice within the year.

Mitsui Sumitomo Asset Management’s Chief Market Strategist, Masahiro Ichikawa, pointed out that the duration of the ongoing U.S.-Israel-Iran conflict and when oil prices will stabilize remain unpredictable. Therefore, the BOJ needs to observe more data before making policy decisions.

“Key indicators include the results of March’s spring labor-management negotiations, the BOJ’s April short-term outlook survey, and regional economic conditions,” Ichikawa said. “These will help assess whether wages are rising significantly and how oil price increases are affecting corporate sentiment and regional economies. All these factors will be important for the BOJ’s future policy decisions.”

JPMorgan’s research report states that the BOJ faces a dual dilemma of uncertainty and yen weakness, making it difficult to ease the path toward policy normalization. The report emphasizes that Japan’s policy situation differs markedly from the Fed and ECB, whose policy rates are near neutral and can wait more comfortably. Meanwhile, Japan’s monetary policy remains highly accommodative, and in the context of renewed global inflation concerns, delaying further could make the BOJ more conspicuous and continue to exert downward pressure on the yen. “The BOJ has less time to wait than its peers,” the report concludes.