How far will the yen fall... "Will exceed 155 yen per dollar"

"Possibility that the Bank of Japan, which was seen as likely to raise rates this month, will leave rates unchanged"

Intervention by Japanese authorities if it passes 155 yen and approaches 160 yen

How far can the yen fall? In the foreign exchange market, there is a high possibility it will exceed 155 yen per dollar, and if it approaches the 160s as it did last year, there are forecasts that yen carry trades could resurface.

The yen has been falling day after day following the emergence of Sanae Takaichi as the next Japanese prime minister, who advocated fiscal expansion and monetary easing policies. There is no shortage of predictions that if the Bank of Japan does not raise rates this month and the yen exceeds the psychological support level of 155 yen per dollar, it could reach 160 yen per dollar as it did last year.

On the 8th (local time), the Japanese yen fell to 152.65 yen per dollar, marking the lowest since February. Against the euro it fell to the lowest level since the euro's introduction in 1999.

If the Bank of Japan (BOJ) does not raise rates this month and maintains the current rate, it could further fuel yen weakness. In the current interest-rate trading market, the October index swaps estimate the probability of an October rate hike at about 25%, down from over 60% a week ago.

One of Takaichi's closest economic advisers said a rate hike this month would be difficult and that raising rates in December would be more appropriate.

Gama Asset Management's global macro portfolio manager Rajiv de Mello said, "The Japanese Ministry of Finance and the Bank of Japan do not want a sharp yen depreciation and would be uncomfortable with the yen falling to the 150–160 range per dollar." Therefore, if weakness continues, actual intervention could soon follow.

Japanese authorities intervened in 2024 when the exchange rate recorded 157.99, 159.45, 160.17 and 161.76 yen per dollar.

The sharp fall in long-term bonds is also accelerating the yen's decline. If government bond issuance increases to stimulate the economy, demand for long-term government bonds will inevitably be suppressed if rate hikes are difficult in a situation where inflationary pressures are already strong.

Marito Ueda, executive director at SBI FX Trade, said, "If there is no warning from the Finance Ministry and the Bank of Japan does not send a rate-hike message, dollar-yen could surge to 155," adding that there is no reason to buy yen now.

The Trump administration has repeatedly claimed that Japan is manipulating the exchange rate for its own benefit.

U.S. Treasury Secretary Scott Bessent, in an interview with Bloomberg, also pointed out that the Bank of Japan (BOJ) is lagging in responding to inflation.

Bank of America changed its yen forecast for this year to 153–155 yen per dollar. Deutsche Bank also shifted its stance on the yen from bullish to neutral.

Kim Jeong-ah, guest reporter kja@hankyung.com