Traders See 40-Year Yen Low as Next Intervention Battleground

Yen watchers are bracing for the currency to slide to its weakest level in four decades against the dollar, a move that many see as the next threshold for the authorities to intervene.

Japan’s currency weakened to its lowest level since July 2024, hitting 160.80 against the dollar on Wednesday, amid a rally in the greenback as traders added to bets that the Federal Reserve will increase interest rates this year. The next key milestone for the yen is 161.95, which if breached would bring it to the lowest level since December 1986.

Many market participants say the move toward that next threshold is inevitable as the interest rate differential between the US and Japan remains wide. The yen has erased all the gains it posted when Japan spent a record ¥11.73 trillion ($73 billion) on intervention from April 28 to May 27.

“A test of 161.95 and a break is coming. It’s not a question of if, but when,” said Tony Sycamore , a market analyst at IG Australia Pty Ltd. Authorities will “likely spend about the same at 161.95 as they did in April and May.”

Chief Cabinet Secretary Minoru Kihara said on Thursday that Japan’s government will take appropriate action in the foreign exchange market at any time if needed. Still, investors say intervention at current levels would likely have only a limited impact given the dollar’s broad-based strength.

“Intervention will likely happen when dollar-yen nears or breaches 161.95,” said Marito Ueda , managing director at SBI FX Trade, adding that the level could be reached this month. “It may not change the underlying trend of yen weakness, but it would be more effective than if authorities stepped in now.”

The Bank of Japan the benchmark rate to the highest level since 1995 on Tuesday, but investors remain concerned that the central bank is not lifting borrowing costs fast enough to control inflation and curb the yen’s weakness. While the US and Iran reached an interim agreement to reopen the Strait of Hormuz, it has done little to boost sentiment on Japan’s currency.

Junya Tanase , chief Japan FX strategist at JPMorgan Chase & Co., said that a move in dollar-yen toward 162 is likely in the coming weeks, especially if there are strong US data releases or a resurgence of fiscal concerns in Japan.

“With the Fed having become hawkish and a hike being in sight, the probability of a range break is rather increasing,” said Tanase. “If dollar-yen rallies further and tests 162, another round of intervention is likely.”