The BOJ must now determine whether it should defend the growth or the price stability. The pressure has been increasing as Japanese government bond yields are highest in decades.

The currency intervention in Japan also demonstrates the severity of the situation. The authority reportedly intervened and purchased the yen when USDJPY hit 160. According to BOJ data, it was possible that the authorities used as much as 5.48 trillion yen, or approximately $35 billion in the process. However, intervention may not be sufficient. The effect can be short-lived without raising the rates or concerted policy intervention.

USDJPY Forecast: Yen Intervention May Slow the Rally Despite Rate Gaps

The weakness of the yen is due to the fact that U.S. rates are significantly higher than Japanese rates. After the intervention, the pair returned to the area around 155. This is an indication that the policy differences between the Fed and the BOJ are wide in the market.

The threat of a second intervention is extremely high in case USDJPY returns to 160. Japan has intervened in holidays in the past, such as Golden Week in 2024. Traders are wary of history. But the intervention can only cause short term pullbacks unless the BOJ proceeds with a rate hike.

The primary trend is now based on two forces. A hike in BOJ would favor the yen and drive USDJPY down. However, a hawkish Fed may limit this move. If U.S. inflation remains strong and the oil prices are high, the USDJPY can continue to move rather than initiate a downward trend.

The daily chart for USDJPY shows constructive bullish price action during the past two years. However, the pair rejected the strong resistance at the 160 level due to intervention.

Despite this failure at 160, the pair only dropped to 155.50, which keeps the bullish trend active. As long as the pair remains above the 150 level, the overall price structure will still remain positive.

The pair can drop further during the next week, but the immediate support remains at the 154 level at the 200-day SMA. However, a recovery above 162 will indicate a strong rally in the pair, with further weakness in the Japanese yen.