I've been keeping a close eye on the USD/JPY currency pair lately, and it feels like the market logic has become a bit more complex. Last week, I took a look at the technicals: USD/JPY has already broken above the 158.50 level, setting fresh highs in many years. Now, the market is focused on the 159-159.50 range. From the candlestick chart, the 50-day moving average is at 156.80, and the 200-day moving average is at 153.20—both are providing support from below. The RSI is approaching 68, which is somewhat overbought, but there’s no divergence signal yet. To be honest, from a chart perspective, the momentum pushing higher still looks quite strong.

But what’s most interesting is Japan’s stance. The Japan Ministry of Finance has been openly saying that they are ready at any time to respond to excessive volatility. These warnings create psychological pressure around the 160 level, because historically, intervention has happened near 160. I looked up past data: from September to October 2022, Japan intervened around 152, with a scale of about $62 billion. The problem now is that the interest-rate differential between the US and Japan is still at historical highs. The Fed is keeping policy above 5%, and while the Bank of Japan has ended negative rates, it is still very accommodative. This differential exceeds 500 basis points. Under this fundamental pressure, simple verbal warnings may have limited effect.

From the perspective of capital flows, Japanese investors have been looking for overseas yield. US Treasuries are attractive, but foreign investors are not very interested in Japanese assets. This creates ongoing demand for USD and supply of JPY, structurally supporting a stronger USD/JPY. I think the challenge facing the Bank of Japan is that it either has to intervene for real, or it needs to change policy—but based on the current economic data, neither seems likely to happen immediately.

Technically, the key support levels are 157.50 and 156.80. Only if it falls below 155.50 can we say the trend is in trouble. Right now, traders’ long positions are already at multi-year highs, and the options market also shows that bullish premiums for USD are rising. If there’s no coordinated support from the G7, or if the Bank of Japan suddenly shifts to a hawkish stance, the short-term downside room for USD/JPY is indeed limited. The 160 level is worth especially close attention—that’s the level where intervention could truly be triggered. However, based on the current interest-rate divergence, even if intervention does occur, it may only slow down the pace of the rally, not reverse the trend.