The Japanese Yen exchange rate rebounds and breaks through the 156 level, as the market eagerly awaits government signals

Recent Forex Market Fluctuations Are Frequent, Yen Movement Becomes the Focus

As December progresses, the USD/JPY exchange rate has experienced intense volatility. This week, Japanese Finance Minister Shunichi Suzuki and Deputy Finance Minister Masamura Jun have spoken out on the currency market, emphasizing the government’s concern over excessive fluctuations and hinting at possible market intervention measures in the near future. Previously, the dovish rate hike decision by the central bank caused USD/JPY to spike to a high of 157.76, and today’s rebound of the yen breaking below 156 has significantly increased market expectations of government intervention.

In contrast, other currency pairs such as the CAD/USD have shown relative stability amid the US dollar’s movements, highlighting the unique volatility of the yen—an area of particular focus for Japanese policymakers.

Is the Christmas Period Really the Best Time for Intervention?

Senior Market Analyst Matt Simpson at StoneX pointed out that if Japanese authorities decide to act, the period from Christmas to New Year, when liquidity is thin, would be the optimal window—market depth is limited, making intervention effects more pronounced.

However, Simpson also expressed reservations: “Unless the 159 level is thoroughly broken, I don’t think the government needs to rush into action. Compared to the crazier volatility in 2022, the current market sentiment seems somewhat calmer.” This view suggests that current market participants lack sufficient momentum for government intervention and that more extreme price movements may be needed to trigger official action.

Central Bank Policy Cycles Determine Long-term Exchange Rate Trends

Charu Chanana, Chief Investment Strategist at Saxo Bank, believes that the fundamental factor influencing the yen’s movement is the interest rate differential among China, Japan, and the US. Japan’s slow pace of rate hikes contrasts with the Federal Reserve’s potential easing policy in 2026, implying limited room for unilateral yen depreciation and a higher likelihood of range-bound oscillations—each time US Treasury yields retreat or risk sentiment shifts, the yen has opportunities to appreciate.

“The biggest potential risk is that US interest rates remain high for a long time while the Bank of Japan becomes more conservative again. We need to closely watch the results of Japan’s spring wage negotiations.”

2026 Will Be a Critical Turning Point

The market generally expects the Bank of Japan to initiate a new round of rate hikes in the second half of next year. Former Monetary Policy Committee member Makoto Sakurai speculates that the window for raising rates to 1% could be in June or July; Sumitomo Mitsui Banking Corporation’s Chief FX Strategist Hiroshi Suzuki predicts October.

Hiroshi Suzuki emphasizes that since there is still a considerable time before the next rate hike, the yen may continue to face downward pressure in Q1—his forecast is that USD/JPY could reach 162 in Q1 2026. “Before the rate hike cycle becomes clear, the yen lacks upward momentum,” he added, “which leaves ample time for traders to short the yen.”

This long-term interest rate differential logic also applies to other non-US dollar currency pairs, including CAD/USD, which will also be affected by the broader environment of US dollar strength.