USD/JPY Analysis: Japan's Ministry of Finance makes a preemptive move; can the yen rebound to 155 next week with the help of non-farm payroll data?
2026-05-30 01:40:08
On Friday (May 29), Japan's Ministry of Finance released data on foreign exchange market intervention from April 28 to May 27. The data confirmed that the Bank of Japan (BOJ) sold a total of 11.735 trillion yen (approximately US$74 billion) for exchange rate control during this period, marking the strongest quarterly foreign exchange intervention since 2004.
Although the amount of funds involved in this intervention is unprecedented, if international crude oil prices and the US benchmark interest rate do not decline significantly, the USD/JPY exchange rate will continue its strong upward trend.
Intervention Details: Phased Entry
This large-scale intervention likely began on April 30th and was subsequently intensified over the next four trading days. Affected by the intervention, the USD/JPY exchange rate fell from above 160 to below 156 in the short term, temporarily easing the pressure on the yen to depreciate.
A historical comparison shows that the last time the Bank of Japan implemented quarterly intervention measures of this magnitude was in 2004. At that time, following the bursting of the dot-com bubble, the Federal Reserve lowered its policy rate to 1%, and the US dollar was in a bear market. To safeguard the exchange rate and stabilize the USD/JPY exchange rate above 100, the Bank of Japan intervened in the foreign exchange market almost daily.
Following this, Japan's foreign exchange interventions have generally been smaller in scale and less frequent. Some market insiders speculate that Japanese policy interventions are constrained by the International Monetary Fund's (IMF) exchange rate regime classification rules: if interventions exceed three times within six months, Japan's exchange rate regime may be reclassified from a free-floating to a floating exchange rate system. This type of regime is more common in emerging market countries such as Brazil and Chile, and differs from other developed economies within the G7, which is why the Japanese authorities have been actively avoiding it.
This round of intervention had little effect.
The USD/JPY exchange rate has now rebounded to around 160, which is sufficient proof that the Bank of Japan's foreign exchange market intervention this year has not achieved the expected results.
The underlying logic of successful intervention in 2024
The Japanese intervention in 2024 was likely to be effective due to two favorable conditions: first, speculative funds in the market were shorting the yen on a large scale; second, the Federal Reserve's monetary policy shifted to easing, and it officially started a rate-cutting cycle in September of that year, gradually narrowing the interest rate differential between the US and the US.
Current market predicament
The current market environment has completely reversed: on the one hand, speculative positions shorting the yen have decreased significantly, and the market's short-selling power is weak; on the other hand, the timing of the Fed's interest rate cut has been repeatedly postponed, and the signal of maintaining high interest rates for a longer period continues to suppress the market, making it difficult for the USD/JPY interest rate differential to narrow.
ING predicts that with the exchange rate breaking through the 160 mark again, the Bank of Japan may be forced to intervene again in the coming months. This intervention will indirectly affect the US Treasury market – Japan will primarily raise funds for intervention by using overseas deposits or selling US Treasury bonds. In 2024, Japan's holdings of US Treasury bonds are projected to shrink by approximately $100 billion, a figure roughly equivalent to the amount of foreign exchange intervention funds used that year.
Furthermore, there is a natural limit to foreign exchange intervention, and the scale of operations is constrained by the total amount of foreign exchange reserves. Although Japan's foreign exchange reserves exceed US$1 trillion, which is ample, policymakers are unwilling to use 20%-30% of their reserves to stabilize the exchange rate.
Market Outlook: Short-term weakness of the yen unlikely to change.
From a fundamental perspective, unless the Bank of Japan takes proactive measures to raise real interest rates, the depreciation of the US dollar against the Japanese yen is unlikely to reverse in the short term.
A common misconception needs to be clarified: the issue isn't whether the BOJ will raise interest rates, but whether it will adopt a hawkish stance. The market is currently pricing in a 78% probability of a June rate hike by the BOJ, and this expectation itself hasn't collapsed. However, the cooling CPI data has led the market to question whether the BOJ has the confidence to implement a sufficiently aggressive rate hike path—for example, explicitly guiding the policy rate from the current 0.75% to exceed 1.5% next year, or decisively announcing a significant reduction in Treasury bond purchases in the June decision to initiate quantitative tightening (QT).
A single, moderate interest rate hike has a very limited effect on narrowing the interest rate differential. The real interest rate gap between Japan and the United States is the core underlying logic supporting the long-term strength of the US dollar against the Japanese yen. As long as this gap cannot be significantly narrowed, the direction of exchange rate gravity will not change.
The short sellers' calculations: The "cost-effectiveness" of intervention has been seen through.
After reviewing the intervention, speculative funds came to a conclusion that made the Japanese authorities uncomfortable: nearly 12 trillion yen was spent to push the exchange rate down from above 160 to around 155, but in less than a month, the dollar recovered its losses against the yen, almost completely erasing the benefits of the intervention.
This contrasts sharply with the conditions under which the intervention was successful in 2024. At that time, two favorable factors existed simultaneously: first, speculative funds in the market were shorting the yen on a large scale, and the intervention triggered a concentrated short covering, creating a "short squeeze"; second, the Federal Reserve officially started its interest rate cut cycle in September of that year, which naturally narrowed the interest rate differential between the US and Japan, providing endogenous support for the yen.
Now, both of these conditions have disappeared. Speculative positions shorting the yen have shrunk significantly, leaving short sellers without sufficient fuel; and Federal Reserve officials have frequently released hawkish signals to suppress inflation expectations, forcing a prolonged period of high interest rates. Lacking fundamental support after intervention, the exchange rate naturally rebounded.
However, this does not mean that the warnings from the Japanese authorities can be ignored. The 160.00 to 160.50 range is already a widely recognized red line in the market. Once the exchange rate touches this line, a surprise intervention during the Asian session could be initiated at any time, bringing a short-term surge of 200 to 400 points. This threshold is a cost that short sellers must weigh.
The key variable next week: the non-farm payroll data will be the real judge.
In the short term, the fate of the yen is 70% determined by US data.
Next Friday will see the release of the US non-farm payrolls report (NFP). Given the current hawkish stance of the Federal Reserve, the direction of this data will directly determine whether the yen has a chance to recover.
If the non-farm payroll data significantly falls short of expectations, the signal of a cooling US job market will quickly transmit to the bond market, causing US Treasury yields to decline and the US dollar to weaken across the board. If the Japanese authorities then intervene, or issue verbal intervention signals, the combined effect could push the USD/JPY pair below 157 and further towards the 155 range.
If the non-farm payroll data is flat or exceeds expectations, the Fed's narrative of maintaining high interest rates for a longer period will be reinforced, US Treasury yields will remain high, and the USD/JPY exchange rate will likely break through 160 again. Speculative funds will launch a new round of stress tests on 160.5, forcing the Japanese authorities to once again take a passive stance.
Can the yen rebound to 155? This requires sufficiently weak non-farm payroll data to alter market expectations regarding the Fed's path; simultaneously, timely intervention from Japanese authorities is also necessary. If either condition is lacking, this rebound is likely just a short-lived spike of 100 to 200 points, still far from 155.
Mid-term outlook: Ministry of Finance takes the lead, BOJ remains on the sidelines.
Looking at the bigger picture, the medium-term trend of the yen is a battle of wills between the two institutions.
The Ministry of Finance has taken a high-profile stance, but if the Bank of Japan (BOJ) continues to be cautious in June and is unwilling to introduce a convincing hawkish path for balance sheet reduction (reducing the scale of government bond purchases) or interest rate hikes, any intervention leading to yen appreciation will be seen by macro funds as a better opportunity to "buy the dollar on dips." Ultimately, exchange rates reflect interest rate differentials, and the control over these differentials lies with the central banks of the two countries.
Furthermore, intervention itself is subject to inherent constraints. Japan primarily raises funds for intervention by utilizing overseas deposits or selling short- and medium-term U.S. Treasury bonds, an operation that indirectly impacts the U.S. Treasury market. In 2024, Japan's holdings of U.S. Treasury bonds shrank by approximately $100 billion, closely matching the scale of intervention that year. Even with foreign exchange reserves exceeding $1 trillion, policymakers are unwilling to allocate 20% to 30% of their reserves to stabilizing the exchange rate—ammunition is limited and cannot be consumed indefinitely.
According to mainstream institutions' forecasts, a drop in the USD/JPY exchange rate to 155 by the end of the year is not impossible. However, this path depends entirely on two prerequisites: a slowdown in US consumption and the Federal Reserve resuming interest rate cuts. Currently, this favorable scenario is unlikely to materialize until the end of the year at the earliest. In the short term, the core driver of the market remains the Federal Reserve's hawkish monetary policy, and the pattern of a strong US dollar and a weak Japanese yen is unlikely to be fundamentally reversed.
Conclusion: Defense is sufficient, but the counter-offensive needs to be ignited.
In summary, Japan's high-profile release of record-breaking intervention data is a proactive psychological tactic aimed at deterring short sellers and defending the 160 level. This stance will, to some extent, curb speculative capital's aggressive moves, but it cannot fundamentally reverse the trend of a strong US dollar and a weak Japanese yen. Next week's key focus is solely on the US non-farm payroll data. This is the only exogenous variable capable of altering the narrative in the short term. If the data weakens, the yen's chance to rebound to 155 certainly exists and should not be underestimated. However, if the data remains strong, the tug-of-war between bulls and bears above 160 will continue, and the yen's path to a rebound will remain long.
Although the amount of funds involved in this intervention is unprecedented, if international crude oil prices and the US benchmark interest rate do not decline significantly, the USD/JPY exchange rate will continue its strong upward trend.
Intervention Details: Phased Entry
This large-scale intervention likely began on April 30th and was subsequently intensified over the next four trading days. Affected by the intervention, the USD/JPY exchange rate fell from above 160 to below 156 in the short term, temporarily easing the pressure on the yen to depreciate.
A historical comparison shows that the last time the Bank of Japan implemented quarterly intervention measures of this magnitude was in 2004. At that time, following the bursting of the dot-com bubble, the Federal Reserve lowered its policy rate to 1%, and the US dollar was in a bear market. To safeguard the exchange rate and stabilize the USD/JPY exchange rate above 100, the Bank of Japan intervened in the foreign exchange market almost daily.
Following this, Japan's foreign exchange interventions have generally been smaller in scale and less frequent. Some market insiders speculate that Japanese policy interventions are constrained by the International Monetary Fund's (IMF) exchange rate regime classification rules: if interventions exceed three times within six months, Japan's exchange rate regime may be reclassified from a free-floating to a floating exchange rate system. This type of regime is more common in emerging market countries such as Brazil and Chile, and differs from other developed economies within the G7, which is why the Japanese authorities have been actively avoiding it.
This round of intervention had little effect.
The USD/JPY exchange rate has now rebounded to around 160, which is sufficient proof that the Bank of Japan's foreign exchange market intervention this year has not achieved the expected results.
The underlying logic of successful intervention in 2024
The Japanese intervention in 2024 was likely to be effective due to two favorable conditions: first, speculative funds in the market were shorting the yen on a large scale; second, the Federal Reserve's monetary policy shifted to easing, and it officially started a rate-cutting cycle in September of that year, gradually narrowing the interest rate differential between the US and the US.
Current market predicament
The current market environment has completely reversed: on the one hand, speculative positions shorting the yen have decreased significantly, and the market's short-selling power is weak; on the other hand, the timing of the Fed's interest rate cut has been repeatedly postponed, and the signal of maintaining high interest rates for a longer period continues to suppress the market, making it difficult for the USD/JPY interest rate differential to narrow.
ING predicts that with the exchange rate breaking through the 160 mark again, the Bank of Japan may be forced to intervene again in the coming months. This intervention will indirectly affect the US Treasury market – Japan will primarily raise funds for intervention by using overseas deposits or selling US Treasury bonds. In 2024, Japan's holdings of US Treasury bonds are projected to shrink by approximately $100 billion, a figure roughly equivalent to the amount of foreign exchange intervention funds used that year.
Furthermore, there is a natural limit to foreign exchange intervention, and the scale of operations is constrained by the total amount of foreign exchange reserves. Although Japan's foreign exchange reserves exceed US$1 trillion, which is ample, policymakers are unwilling to use 20%-30% of their reserves to stabilize the exchange rate.
Market Outlook: Short-term weakness of the yen unlikely to change.
From a fundamental perspective, unless the Bank of Japan takes proactive measures to raise real interest rates, the depreciation of the US dollar against the Japanese yen is unlikely to reverse in the short term.
A common misconception needs to be clarified: the issue isn't whether the BOJ will raise interest rates, but whether it will adopt a hawkish stance. The market is currently pricing in a 78% probability of a June rate hike by the BOJ, and this expectation itself hasn't collapsed. However, the cooling CPI data has led the market to question whether the BOJ has the confidence to implement a sufficiently aggressive rate hike path—for example, explicitly guiding the policy rate from the current 0.75% to exceed 1.5% next year, or decisively announcing a significant reduction in Treasury bond purchases in the June decision to initiate quantitative tightening (QT).
A single, moderate interest rate hike has a very limited effect on narrowing the interest rate differential. The real interest rate gap between Japan and the United States is the core underlying logic supporting the long-term strength of the US dollar against the Japanese yen. As long as this gap cannot be significantly narrowed, the direction of exchange rate gravity will not change.
The short sellers' calculations: The "cost-effectiveness" of intervention has been seen through.
After reviewing the intervention, speculative funds came to a conclusion that made the Japanese authorities uncomfortable: nearly 12 trillion yen was spent to push the exchange rate down from above 160 to around 155, but in less than a month, the dollar recovered its losses against the yen, almost completely erasing the benefits of the intervention.
This contrasts sharply with the conditions under which the intervention was successful in 2024. At that time, two favorable factors existed simultaneously: first, speculative funds in the market were shorting the yen on a large scale, and the intervention triggered a concentrated short covering, creating a "short squeeze"; second, the Federal Reserve officially started its interest rate cut cycle in September of that year, which naturally narrowed the interest rate differential between the US and Japan, providing endogenous support for the yen.
Now, both of these conditions have disappeared. Speculative positions shorting the yen have shrunk significantly, leaving short sellers without sufficient fuel; and Federal Reserve officials have frequently released hawkish signals to suppress inflation expectations, forcing a prolonged period of high interest rates. Lacking fundamental support after intervention, the exchange rate naturally rebounded.
However, this does not mean that the warnings from the Japanese authorities can be ignored. The 160.00 to 160.50 range is already a widely recognized red line in the market. Once the exchange rate touches this line, a surprise intervention during the Asian session could be initiated at any time, bringing a short-term surge of 200 to 400 points. This threshold is a cost that short sellers must weigh.
The key variable next week: the non-farm payroll data will be the real judge.
In the short term, the fate of the yen is 70% determined by US data.
Next Friday will see the release of the US non-farm payrolls report (NFP). Given the current hawkish stance of the Federal Reserve, the direction of this data will directly determine whether the yen has a chance to recover.
If the non-farm payroll data significantly falls short of expectations, the signal of a cooling US job market will quickly transmit to the bond market, causing US Treasury yields to decline and the US dollar to weaken across the board. If the Japanese authorities then intervene, or issue verbal intervention signals, the combined effect could push the USD/JPY pair below 157 and further towards the 155 range.
If the non-farm payroll data is flat or exceeds expectations, the Fed's narrative of maintaining high interest rates for a longer period will be reinforced, US Treasury yields will remain high, and the USD/JPY exchange rate will likely break through 160 again. Speculative funds will launch a new round of stress tests on 160.5, forcing the Japanese authorities to once again take a passive stance.
Can the yen rebound to 155? This requires sufficiently weak non-farm payroll data to alter market expectations regarding the Fed's path; simultaneously, timely intervention from Japanese authorities is also necessary. If either condition is lacking, this rebound is likely just a short-lived spike of 100 to 200 points, still far from 155.
Mid-term outlook: Ministry of Finance takes the lead, BOJ remains on the sidelines.
Looking at the bigger picture, the medium-term trend of the yen is a battle of wills between the two institutions.
The Ministry of Finance has taken a high-profile stance, but if the Bank of Japan (BOJ) continues to be cautious in June and is unwilling to introduce a convincing hawkish path for balance sheet reduction (reducing the scale of government bond purchases) or interest rate hikes, any intervention leading to yen appreciation will be seen by macro funds as a better opportunity to "buy the dollar on dips." Ultimately, exchange rates reflect interest rate differentials, and the control over these differentials lies with the central banks of the two countries.
Furthermore, intervention itself is subject to inherent constraints. Japan primarily raises funds for intervention by utilizing overseas deposits or selling short- and medium-term U.S. Treasury bonds, an operation that indirectly impacts the U.S. Treasury market. In 2024, Japan's holdings of U.S. Treasury bonds shrank by approximately $100 billion, closely matching the scale of intervention that year. Even with foreign exchange reserves exceeding $1 trillion, policymakers are unwilling to allocate 20% to 30% of their reserves to stabilizing the exchange rate—ammunition is limited and cannot be consumed indefinitely.
According to mainstream institutions' forecasts, a drop in the USD/JPY exchange rate to 155 by the end of the year is not impossible. However, this path depends entirely on two prerequisites: a slowdown in US consumption and the Federal Reserve resuming interest rate cuts. Currently, this favorable scenario is unlikely to materialize until the end of the year at the earliest. In the short term, the core driver of the market remains the Federal Reserve's hawkish monetary policy, and the pattern of a strong US dollar and a weak Japanese yen is unlikely to be fundamentally reversed.
Conclusion: Defense is sufficient, but the counter-offensive needs to be ignited.
In summary, Japan's high-profile release of record-breaking intervention data is a proactive psychological tactic aimed at deterring short sellers and defending the 160 level. This stance will, to some extent, curb speculative capital's aggressive moves, but it cannot fundamentally reverse the trend of a strong US dollar and a weak Japanese yen. Next week's key focus is solely on the US non-farm payroll data. This is the only exogenous variable capable of altering the narrative in the short term. If the data weakens, the yen's chance to rebound to 155 certainly exists and should not be underestimated. However, if the data remains strong, the tug-of-war between bulls and bears above 160 will continue, and the yen's path to a rebound will remain long.
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