The intervention results of 11.73 trillion yuan have returned to zero! A 40-year low is imminent, with a trigger point of 161.95 yen per dollar potentially prompting a new round of currency intervention by the Japanese government.

Focus on Japanese yen forex traders are preparing to face the currency's exchange rate with the US dollar falling to its weakest level in forty years. Many traders believe that this trend will be the next key threshold for the Japanese Ministry of Finance to intervene once again. The next key milestone for the yen could be the 161.95 level against the US dollar, which, if breached, would bring it down to its lowest level since December 1986. Many market participants, including forex traders, express that it is inevitable for the yen to move towards the next key threshold without the intervention of the Japanese government. On Thursday morning, as the US dollar strengthened significantly due to the hawkish stance of the Federal Reserve, with traders increasing bets on the Fed resuming rate hikes this year, the yen exchange rate fell to its lowest level since July 2024, reaching 160.80 yen to 1 US dollar. Therefore, the next key milestone for the yen is leaning towards 161.95; if it falls below this level, the yen will drop to its lowest level since December 1986. Many market participants believe that with the wide yield spread between US and Japanese government bonds, the yen moving towards the next threshold is unavoidable. The yen has already erased all the gains made during the record 11.73 trillion yen (approximately $73 billion) intervention in the forex market by the Japanese Ministry of Finance from April 28 to May 27. As long as the US dollar rates remain high, and US data continues to be strong, the yen bears have the motivation to continue testing the Japanese government's bottom line. Japanese Chief Cabinet Secretary Mikio Kiwara has signaled that the government will take appropriate action when necessary, and Finance Minister Koizumi had emphasized readiness to take decisive measures. However, it is widely believed that intervening around 160 may have limited effects; and if it is closer to or exceeds 161.95/162, intervention measures would have a stronger psychological impact on speculative forces but would be more like fighting against the trend rather than reversing it. "The moment to test 161.95 and break through is approaching. It's not a matter of whether, but when," said Tony Sycamore, Senior Market Analyst at IG Australia Pty Ltd. Japanese authorities "could spend roughly the same amount near 161.95 as in April and May," Sycamore said. Chief Cabinet Secretary Mikio Kiwara said on Thursday that the Japanese government will take appropriate action in the forex market at any time if necessary. However, forex traders and strategists generally believe that intervention at the current level may have limited impact due to the strong US dollar. "Intervention may occur when the US dollar approaches or falls below 161.95," said Marito Ueda, Managing Director of SBI FX Trade, adding that the level may be reached this month. "This may not change the basic trend of the yen weakening, but it may be more effective than the government's action at the current level." The Bank of Japan raised interest rates on Tuesday as expected by the market, raising the benchmark rate to its highest level since 1995. However, investors are still concerned that the central bank may not be raising borrowing costs quickly enough to control inflation and curb the yen's depreciation. Although the US and Iran reached a temporary agreement to reopen the Strait of Hormuz, it did not provide much boost to Japan's domestic economic growth expectations, which relies heavily on energy imports, and the sentiment in the Japanese currency trading market. Junya Tanase, Chief Japanese Forex Strategist at JPMorgan, stated that there was a high probability for the US dollar to move towards 162 in the coming weeks, especially when strong US data is released or concerns about fiscal expansion in the Japanese bond market are reignited. "With the Fed turning hawkish and rate hikes on the horizon, the probability of a breakout in the US dollar against the yen is rising," Tanase said. "If the US dollar rises further and tests 162 against the yen, another round of intervention is likely to occur." The yen is currently becoming a central trading vehicle for global interest rate differentials, US and Japanese government bond yield differentials, energy import inflation effects, Japanese fiscal trust, and the pace of normalizing the central bank. The depreciation of the yen is favorable for Japanese exporters and stocks with a higher proportion of overseas income, but it also raises domestic inflation through higher energy, food, and raw material costs, squeezes household real purchasing power, and pressures the Bank of Japan to raise rates earlier or more frequently. Since the beginning of the year, the Japanese stock market and the yen exchange rate have been "completely disconnected" from the Japanese government bond market, with foreign capital continuously flowing in, driving the Japanese stock market to rise and hit historical highs, while Japanese bonds and the yen are struggling. Leading AI chip and semiconductor companies in the Japanese stock market such as Arm, SoftBank, Socionext, Advantest, Tokyo Electronics, Lasertec, and Disco, which collectively hold a higher weight in the Nikkei 225, are considered the most important narrative axis for the recent massive inflow of foreign capital into the Japanese stock market, and the core contribution weight of the Nikkei 225 index hitting record highs. The continued strong rise of the Japanese stock market's leaders in AI chips and semiconductor equipment can be seen as a reassessment trajectory of the AI computing power industry chain brought by the record demand overflow of NVIDIA's AI GPU. Compared to the US and South Korean markets, which have also been dominated by the AI computing wave recently, the unique feature of the Japanese market lies in its lack of AI chip/storage chip superpowers such as NVIDIA, AMD, Micron, Broadcom, and Google, but has a number of indispensable AI assets deeply embedded in the AI computing power industry chain, such as Arm, Tokyo Electronics, Advantest, Disco, Lasertec, Socionext, and SoftBank. Therefore, foreign investors generally view Japan as the "second battlefield for the AI computing power infrastructure industry chain."