The Dollar to Yen (USD/JPY) exchange rate held just below the 160 level, with the pair trading near multi-year highs as yen weakness persists.

Rabobank notes that the Japanese Yen is the weakest-performing G10 currency both month-to-date and year-to-date, with USD/JPY supported by yield differentials and cautious Bank of Japan policy expectations.

The bank highlights that gains beyond 160 have so far been limited by the risk of intervention from Japan’s Ministry of Finance, while uncertainty over near-term BoJ policy is also capping moves.

Rabobank expects upcoming policy decisions from both the BoJ and Federal Reserve to be key drivers, warning that the absence of a BoJ rate hike could push the pair higher.

“The absence of a rate hike from the BoJ… could propel the currency pair above 160.”

At the same time, the bank notes that expectations for tightening have become less certain, despite earlier hawkish signals from Governor Ueda, with markets now less confident about the timing of the next move.

Rabobank forecasts the Dollar to Yen exchange rate (USD/JPY) will fall to 158 within 3 months and to 152 over a 6-month horizon, assuming a more hawkish stance from the BoJ alongside an easing bias from the Federal Reserve.

The risk of intervention is expected to remain a key factor if USD/JPY moves higher, particularly near the 160 level.

“The chances of a re-test of the USD/JPY160 level will increase.”