The yen hits a 6-month low as Japanese officials issue intervention warnings

Zhitong Finance has learned that after the yen exchange rate fell to its lowest level since July last year, Japanese authorities issued a warning to speculators for the first time in 2025, expressing concerns about the sudden and one-sided movements in the foreign exchange market. Japanese Finance Minister Katsunobu Kato stated to reporters on Tuesday, "If there is excessive volatility in the foreign exchange market, we will take appropriate action." This implies a subtle warning from Japanese authorities regarding direct intervention in the foreign exchange market. Kato expressed deep concern over recent actions, including those driven by speculators.

On Tuesday morning, the yen exchange rate reached 158.42 yen per dollar, the lowest point in nearly six months. Following Kato's remarks, the yen strengthened. As of the time of writing, the dollar was trading around 158.11 yen.

The yen continues to hover near levels that triggered intervention in the summer, after market expectations for the timing of interest rate hikes in Japan and rate cuts in the U.S. were pushed back in December last year. The interest rate and yield differentials between the two economies are one of the key factors affecting the exchange rate.

Any further changes in expectations regarding interest rate trends in the U.S. or Japan could significantly intensify market speculation about renewed intervention. The U.S. non-farm payroll data to be released on Friday evening could be one of the potential catalysts for sudden fluctuations in the exchange rate. If the U.S. employment data released on Friday exceeds expectations and further delays the U.S. rate cut outlook, it could weaken the yen.

Japan intervened in the foreign exchange market four times in 2024, spending nearly $100 billion to support the yen. The last two interventions occurred in July when the dollar-yen exchange rate broke through the 160 mark.

After Bank of Japan Governor Kazuo Ueda unexpectedly signaled caution regarding interest rate hikes at the December policy meeting, expectations for a rate hike have weakened recently. In a series of New Year speeches on Monday, Ueda hinted that if Japan's economy continues to improve this year, the Bank of Japan would still raise the benchmark interest rate, keeping the door open for rate hikes at future meetings.

Overnight swap trading on Tuesday indicated a 48% chance of a Bank of Japan rate hike in January. In contrast, over 80% of participants expected the Bank of Japan to take action before January at the beginning of December last year. On Tuesday, Barclays stated that due to uncertainties surrounding domestic and foreign policies, it expects the Bank of Japan to raise rates in March and October this year, previously anticipated for January and July; recent communications from the Bank of Japan indicate that concerns about the weak yen have diminished compared to June and July.

The speech by Bank of Japan Deputy Governor Ryozo Himino next week could be a key event in gauging the timing of Japan's next rate hike and the likelihood of a rate hike in January or March. The Bank of Japan will also hold a branch manager meeting later this week, which may provide further insights into wage trend conditions across various regions in Japan, a key area of concern for Ueda Globally, the policy signals from the incoming U.S. President Trump have intensified the volatility of the Japanese yen. A report suggesting that Trump might scale back the increase in tariffs initially weakened the dollar overnight, but Trump later denied the report, leading to a rebound in the dollar