Lost at the 163 mark! The yen has plummeted to a new low in 40 years, and the intervention warning has become “the wolf is here”?

The Zhitong Finance App learned that the exchange rate of the yen against the US dollar fell below the 163 mark for the first time since 1986. The decline continues to expand, and the market test of the Japanese authorities' willingness to intervene is constantly escalating. Affected by the renewed tension between the US and Iran driving up oil prices, the US dollar followed the strengthening of US bond yields. The yen fell 0.5% overnight to 163.24 to 1 US dollar, breaking a 40-year low.

This trend highlights that multiple factors, such as geopolitical tension, Japan's fiscal outlook, and wide interest rate spreads, continue to suppress the yen, making it difficult for the authorities to stabilize the exchange rate to work. Japan's Ministry of Finance used 11.73 trillion yen (about 71.9 billion US dollars) to intervene between April 28 and May 27, but the yen remained at its lowest level in 40 years.

Finance Minister Satsuki Katayama (Satsuki Katayama) warned last week of possible exchange rate intervention in the strongest terms in weeks.

Capital.com analyst Kyle Rodda (Kyle Rodda) said: “Higher oil prices, expectations of US interest rate hikes, and the combination of Japan's stimulatory fiscal and monetary policies are driving this trend — a trend that is difficult to reverse unless the Japanese authorities make substantial policy revisions. As a result, the market will be on high alert for intervention.”

Strategist Mark Cranfield (Mark Cranfield) pointed out that the rise in the USD/JPY exchange rate is forming its own momentum, which means that traders will see any official intervention as an opportunity to re-establish short positions in the yen rather than exit this trade.

Since Japanese officials have repeatedly made verbal threats to take “decisive action” without vigorous implementation, intervention warnings no longer trigger a reflex dollar sell-off as in the past.

Currently, more substantial steps may be needed to reverse the situation — such as persuading the Japanese Government Pension Investment Fund (GPIF) to repatriate funds, or the sudden collapse of US bond yields to destroy arbitrage transactions. With oil prices continuing to rise and the risk of inflation continuing, the latter seems difficult to achieve in the short term.

Investors have generally reacted nonchalantly to a series of policy measures that should theoretically support the yen exchange rate. Earlier this week, Japan's cabinet approved an economic and fiscal policy plan. The footnote states that on the premise of respecting the autonomy of the Bank of Japan, the central bank will be responsible for specific monetary policy decisions. The move was seen as helping to ease concerns that political pressure might delay further interest rate hikes.

Japanese officials also proposed plans to encourage domestic investment, including requiring GPIF to re-examine its asset allocation and considering allowing Japanese treasury bonds to be held in tax-free NISA accounts. Although such measures are expected to support the yen in the medium to long term by encouraging the return of capital, many investors believe that it is difficult to offset the short-term headwinds faced by the yen.

Katayama Satsuki also stressed that she has no right to interfere with GPIF's investment decisions. According to the law, GPIF must manage assets only for the benefit of pension beneficiaries and not to support government policies.

Some strategists believe that the gradual weakening of the yen lessens the urgency of intervention.

Rinto Maruyama, senior foreign exchange and interest rate strategist at Sumitomo Mitsui Nikko Securities, said, “Although the dollar has broken through 163 against the yen, the trend is extremely slow. My basic judgment is still that the authorities will not intervene for the time being. Without intervention, 165 will be the next key level the market will focus on.”