Japanese Yen Rapidly Depreciates Near 158 Level, Central Bank Intervention Risks Increase 【Foreign Exchange Market Focus】

The Yen’s Sharp Drop Becomes Focus Point; Government Intervention Signals Frequently Occur

Last week, the foreign exchange market was volatile, with the USD/JPY rising by 1.28%, and the yen experienced a significant depreciation against the dollar. This wave of depreciation was driven by the Bank of Japan’s “moderate rate hike” policy—although the rate was raised by 25 basis points as scheduled, Governor Ueda Kazuo’s dovish remarks surprised the market. Meanwhile, Prime Minister Sanae Nagaoka’s cabinet approved an 18.3 trillion yen fiscal stimulus package, largely offsetting the tightening effects of the rate hike policy.

JPMorgan has issued a warning that if the yen depreciates more than 160 in the short term, it will be deemed a sharp exchange rate fluctuation, significantly increasing the likelihood of Japanese government intervention. Nomura Securities holds a more optimistic view, believing that under the context of the Federal Reserve’s rate cut cycle, the dollar will gradually weaken, and the yen’s depreciation trend will not continue. It is expected that in the first quarter of 2026, the yen may appreciate to 155.

Divergence in Central Bank Policies; Market Expectations Show Disagreement

Sumitomo Mitsui Banking Corporation’s forecast differs from Nomura’s. The bank believes that the next rate hike window will open in October 2026, which is still far from the rate hike, and thus expects the USD/JPY exchange rate to further depreciate to 162 in the first quarter of 2026. Currently, the market generally expects the Bank of Japan to cut interest rates only once in 2026, which contrasts sharply with the Federal Reserve’s easing expectations.

Euro Trend: Key Factors Are Interest Rate Differentials and Policy Divergence

Last week, EUR/USD initially rose then fell, ultimately closing down 0.23%. The European Central Bank held steady as expected, with President Lagarde not providing the hawkish signals market anticipated. On the US side, November non-farm payroll data showed mixed results, and November CPI data was below expectations. Morgan Stanley, Barclays, and other investment banks pointed out that the data are heavily distorted by technical factors and statistical biases, making it difficult to accurately assess the actual trend.

Market expectations for the Fed’s policy path in 2026 remain, with forecasts of two rate cuts throughout the year, including a 66.5% probability of a cut in April. Danske Bank stated that due to the Fed initiating a rate cut cycle while the ECB maintains its policy stance, the real interest rate differential after inflation adjustment may narrow, which would favor euro appreciation. Signs of recovery in European asset markets, increased hedging demand against US dollar risks, and declining confidence in US institutions could all boost the euro’s performance.

Technical Outlook and Trading Opportunities

USD/JPY has broken through the 21-day moving average, with MACD signaling a buy. If it can break through the 158 resistance level, a larger upward space could open. Conversely, if it remains under pressure below 158, the risk of a pullback increases, with support around 154.

For EUR/USD, the pair remains above multiple moving averages, with a short-term upward breakout possible. Resistance is set near the previous high of 1.18. If the upward momentum cannot be maintained and the price falls back, support is around the 100-day moving average at approximately 1.165.

Key Focus Points This Week

Investors should pay close attention to the US Q3 GDP data release and geopolitical developments. If GDP exceeds expectations, it will be bullish for the dollar and pressure EUR/USD; otherwise, it could support a rebound in the euro. Regarding Japan, the tone of Ueda Kazuo’s subsequent speeches and whether Japanese authorities escalate verbal intervention will be focal points. Hawkish signals or an escalation in intervention could push the USD/JPY lower.

The US dollar index rose 0.33% last week, with divergence among major currencies—EUR down 0.23%, JPY plunging 1.28%, AUD down 0.65%, and GBP slightly up 0.03%. The market is still searching for new drivers.