The U.S. non-farm payroll data for December is about to be released, and traders are wary of the risk of intervention in the foreign exchange market by Japanese authorities

According to the Zhitong Finance APP, the U.S. non-farm payroll report for December, which will be released later on Friday, could become a catalyst for significant fluctuations in the yen, as traders remain vigilant about the rising risk of Japanese authorities intervening in the foreign exchange market to support the yen.

The exchange rate of the U.S. dollar against the yen is nearing the level of 1 dollar to 160 yen. If this level is breached, policymakers at the Bank of Japan will be increasingly concerned about the impact of a weak yen on businesses and consumers. Strategists believe that if the U.S. non-farm payroll data for December is strong, it could push the dollar-yen exchange rate towards the 160 level, further bringing the decades-low point of 161.95 back into focus.

Tsutomu Soma, a bond and foreign exchange trader at Monex, stated, "If the dollar-yen exchange rate approaches 160 after the U.S. non-farm payroll data is released, (Japanese authorities) may intervene, but there may first be some verbal warnings. If the employment data is strong, the market will have no choice but to buy dollars."

It is reported that Japanese authorities intervened in the foreign exchange market four times in 2024, spending nearly $100 billion. Japanese Finance Minister Katsunobu Kato stated on Tuesday that authorities would take appropriate actions to prevent excessive fluctuations in the exchange rate.

Due to the interest rate differential between the U.S. and Japan, the yen has depreciated against the dollar for four consecutive years. Federal Reserve officials have hinted at slowing the pace of interest rate cuts this year, while the timing of the Bank of Japan's next rate hike remains uncertain, making the yen susceptible to selling pressure.

However, what complicates foreign exchange traders is that last year's actions by Japanese authorities indicate that they can amplify moments of yen strength through intervention, rather than just preventing significant sell-offs of the yen. While traders speculate about the bottom line for Japanese authorities' intervention, officials have stated that their concerns about volatility and the speed of fluctuations are no less than their concerns about specific exchange rate levels.

Jane Foley, head of foreign exchange strategy at Rabobank, stated that for the dollar-yen exchange rate to "convincingly decline, the market may have to be more concerned about the Bank of Japan tightening policy soon." The overnight swap market shows that the likelihood of the Bank of Japan raising interest rates at its next meeting on January 23-24 is only 43%.

In addition to U.S. employment data, Jane Foley noted that the speech by Bank of Japan Deputy Governor Ryozo Himino next week will be important in signaling the Bank of Japan's intentions. Bank of Japan Governor Kazuo Ueda reiterated on Monday that if Japan's economy continues to improve this year, he will raise the benchmark interest rate. Ueda stated, "Our position is that if the economy and price conditions continue to improve, we will raise the policy interest rate to adjust the degree of monetary easing."