Yen hits new lows, policy intervention approaching a critical point! Euro-Yen breaks historical highs

The focus of the foreign exchange market has once again shifted to the Japanese Yen. Since November, the Yen has continued to weaken, with USD/JPY falling below the 155 level, and EUR/JPY surging to 179.52, breaking the nearly 26-year historical high since the euro’s inception. Behind this exchange rate movement, it reflects not only the fundamental differences caused by the widening US-Japan interest rate differential but also hints that the threshold for government intervention is approaching.

Accelerating depreciation, markets await policy signals

The direct reason for the Yen’s weakness is not complicated. U.S. President Trump signed a temporary funding bill on the 12th local time, ending a 43-day federal government shutdown. This event alleviated market pessimism about the U.S. economy and supported the dollar’s appreciation. Meanwhile, Japan’s new Prime Minister Sanae Takashi recently called for the Bank of Japan to act cautiously, implying a slowdown in rate hikes, which undoubtedly reinforced the Yen’s depreciation expectations.

Looking at the EUR/JPY performance, hitting new highs has become the norm. This not only reflects the Yen’s relative weakness but also shows market concerns about Japan’s economic policy direction.

Where is the intervention boundary? Different institutions have their judgments

Historical experience tells us that Japanese authorities are not inactive. Finance Minister Shōzō Katō issued a cautious verbal warning on the 12th, pointing out that there is “unilateral rapid fluctuation” in the foreign exchange market, which is a typical early warning sign. Looking back over the past two years, Japan’s Ministry of Finance has intervened in the currency market in 2022 and 2024, especially around 158 and 161.7 respectively.

However, this time, market opinions on the timing of intervention differ. Bank of America believes that USD/JPY needs to further test the 158 level before a substantive policy response can be triggered. Goldman Sachs’s forecast is more cautious, suggesting that intervention probability will significantly increase when the exchange rate reaches the 161 to 162 range. In other words, although the current level around 155 has made new lows, it is still some distance from the actual intervention trigger line.

Two major variables influencing future trends

Looking ahead, the direction of USD/JPY mainly depends on two variables. First, the economic data released as the U.S. government fully resumes work—including key indicators such as employment, inflation, and growth—will reshape market expectations of the Federal Reserve’s interest rate path. Second, Prime Minister Sanae Takashi’s plan to introduce economic stimulus measures in late November will directly impact expectations of the Bank of Japan’s policy.

JPMorgan Chase and Mizuho Securities have relatively consistent forecast targets, both indicating that the USD/JPY target price by the end of 2025 is around 156. This means that even if the exchange rate continues to fluctuate, the magnitude will not expand infinitely.

The current environment is full of uncertainties for investors, but there are clear points to watch: the performance of U.S. economic data, the specifics of Japan’s economic stimulus plan, and potential market volatility triggered once government intervention is initiated.