Yen depreciation is astonishing! The 157 level is in danger—Is the Bank of Japan really about to intervene?

Last Week’s Market Recap

Last week, the foreign exchange market was volatile. The US Dollar Index rose slightly by 0.33%, while non-US currencies showed mixed performance: the Euro weakened by 0.23%, the Australian Dollar declined by 0.65%, the British Pound was almost unchanged with a 0.03% increase, and the Japanese Yen became the “loser of the week,” depreciating by 1.28%. Especially for USD/JPY, the most traded non-US currency pair, it has approached the 158 level.

The reasons behind this are not simple—although the Bank of Japan (BOJ) raised interest rates by 25 basis points as scheduled, Governor Ueda Kazuo’s dovish comments disappointed the market. Meanwhile, Japan’s new cabinet approved a massive fiscal stimulus package of up to 18.3 trillion yen, which directly diluted the effect of the rate hike. In simple terms, the tightening policy was softened by accommodative fiscal measures.

Yen Continues to Depreciate, Is 158 a Life-or-Death Line?

From a technical perspective, USD/JPY has broken through the 21-day moving average, and the MACD indicates a clear buy signal with upward momentum. Once it breaks through the 158 threshold, there could be room for further gains. But the key question is—can the Japanese government tolerate this?

JPMorgan has issued a clear warning: if the yen depreciates by more than 160 in a short period, it will be deemed a “sharp exchange rate fluctuation,” significantly increasing the likelihood of government intervention. This means that the 158 level is not only a technical resistance but also a politically sensitive point.

Market opinions on the future trend of the yen are divided:

• Sumitomo Mitsui Banking Corporation believes the BOJ will raise rates again only by October 2026, and predicts the yen could weaken to 162 in Q1 2026.
• Nomura Securities is more optimistic about the yen, believing that under the backdrop of Fed rate cuts, the US dollar will struggle to stay strong, and forecasts the yen could appreciate to 155.

This divergence reflects market uncertainty about Japan’s policy stance. Considering the linkage between the yen and the RMB, during the yen’s depreciation cycle, the RMB will also face pressure.

Is the Euro Looking for Opportunities?

Contrasting with the yen’s weakness, EUR/USD fell by 0.23% last week, but institutions generally remain optimistic about a rebound.

The ECB maintained interest rates as expected, and President Lagarde did not signal the hawkish stance that markets anticipated. Meanwhile, US November non-farm payroll data was mixed, and November CPI came in below expectations. Major banks like Morgan Stanley and Barclays questioned the statistical accuracy of these data, suspecting serious biases.

Danske Bank’s logic is straightforward: with the Fed cutting rates and the ECB holding steady, the narrowing interest rate differential favors euro appreciation. Additionally, economic uncertainty in the US and geopolitical hedging needs could also drive a rebound in the euro.

From a technical standpoint, EUR/USD remains above multiple moving averages, with short-term room for gains. Resistance is near the previous high of 1.18. If it pulls back, the 100-day moving average at 1.165 is an important support level.

What to Watch This Week?

Euro: Focus on US Q3 GDP data. If it exceeds expectations, it will strengthen the dollar and pressure the euro; if below, it will be favorable for the euro. Keep an eye on geopolitical developments as well.

Yen: This is the key focus. Ueda Kazuo’s speeches and the tone of verbal interventions by Japanese authorities are crucial. Hawkish comments or escalated intervention rhetoric could directly suppress USD/JPY. Also, monitor whether the 158 level can hold.

From a technical perspective, if USD/JPY remains below 158, the probability of a correction increases, with recent support around 154.

Overall, this week’s forex market focus centers on the game between “Fed rate cut expectations vs. Japanese government intervention risk.” Whether the yen becomes a focal point between 157-158 will determine the direction of non-US currency pairs in the near term.