Yen crosses key threshold, but don’t count on intervention just yet

TOKYO—The yen has breached the psychologically important 160 level against the dollar, but the lack of rapid, one-sided moves makes it difficult to justify government intervention.

The Japanese currency weakened to as low as 160.45 against the dollar Thursday morning, in the wake of the Federal Reserve’s decision to keep rates steady. That combined with continued safe-haven demand for the greenback driven by the conflict in the Middle East to weigh on the yen.

“Intervention is very much on the table, though timing depends on where the yen settles,” as the market went through various events, including central banks’ rate decisions and oil price volatility, said Moody’s Analytics economist Stefan Angrick.

“Authorities often favor intervention on or around holidays because liquidity runs thin, so each dollar spent tends to have a larger market impact than during normal trading periods,” Angrick said.

Foreign-exchange rates could swing wildly while the Japanese market is closed for public holidays from May 4 to 6.

Finance Minister Satsuki Katayama has said the government is ready to take action in the currency market at any time, even during the Golden Week holidays. Japan has intervened during that holiday in the past, and Katayama has repeatedly voiced concerns about the impact of a weak yen on living costs.

The yield on 10-year Japanese government bonds hit 2.52%—the highest level since 1997—reflecting inflationary concerns as energy costs rise, threatening to spill over into more goods and services.

Another factor under consideration is the risk that intervening in FX could raise protests from other countries about “currency manipulation.” That said, the international community is likely to tolerate Japan conducting yen-buying operations if currency moves are excessive and disorderly, and not reflective of economic fundamentals.

At present, the yen’s moves don’t fully meet these conditions, said NLI Research Institute economist Tsuyoshi Ueno. Speculative yen-selling positions are significantly lower than in 2024, when the government last intervened, while the pace of depreciation remains stable as intervention fears cap any sharp weakening.

“Actual intervention would likely only occur if the yen breaches the 162 level within a short period of time,” Ueno said. “Any intervention at this stage would likely be undone by geopolitical shifts in the Middle East.”

But traders and analysts believe Japanese policymakers have limited options to halt the yen’s sharp depreciation.

Further interest-rate hikes by the Bank of Japan might lack the power to reverse depreciation trends, as a hike in the summer is already priced in.

BOJ officials might not be able to send any definitive messages about monetary tightening before their next meeting in June because their actions largely depend on the Middle East situation, NLI Research’s Ueno said.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com