With the Japanese yen falling below the 160 threshold again this week, almost all traders in the forex market are currently focused on when the Japanese authorities will intervene in the yen exchange rates again.

Looking at the time window, many Wall Street people believe that the next 'pain point' of the yen or potential trigger for Japanese government intervention is likely to fall on the inflation index, which is the most favored by the US Federal Reserve on Friday.

Since this week, the Japanese yen exchange rate against the US dollar has been facing the risk of falling below the 160 level and hitting the lowest point of the year, which has increased the pressure on the Japanese government to take action. However, traders believe that any early action to support the yen would be highly risky, as Friday's PCE price data will be critical to determining the outlook for US interest rates and the trend of the yen.

Sales and trading director Takafumi Onodera of Mitsubishi UFJ Trust Bank in New York said that 'the Japanese authorities will wait until after the PCE is released on Friday before deciding whether to intervene, even if the yen falls below 160 before that. A higher-than-expected PCE report could stimulate market volatility, causing the yen to plummet to 163 and prompting Japanese officials to announce a 'currency check' or take direct action on Friday in New York when liquidity is scarce, as they did last time.'

The current trend of the yen exchange rate is of great importance to the Japanese economy, and the weakness of the yen is hurting Japanese consumers and causing growing concerns in the business sector.

Katsunobu Kato, Japan's highest-ranking foreign exchange official and vice minister of finance, warned on Monday that the government was ready to intervene in the foreign exchange market 24 hours a day if necessary. 'If currency fluctuates too much, it will have a negative impact on the national economy. Once (the yen) sees a speculative excessive fluctuation, we are ready to take appropriate action.'

Usually, the decision on whether to intervene in the foreign exchange market will be made by the Japanese Ministry of Finance and carried out by the Bank of Japan as the actual agent of the market operation.

Waiting for data performance.

Nick Twidale, a trader at ATFX Global Markets, said PCE data would be key. If they (Japanese officials) intervene before that, it would be crazy—they'll try to avoid doing anything before PCE. Twidale has been trading foreign exchange for 25 years.

At present, the huge interest rate difference between the United States and Japan is still the fundamental reason for the weakness of the yen, although the Japanese authorities conducted foreign exchange intervention in the second quarter, the yen still faces enormous pressure.

A team led by Citigroup analyst Takashima Osamu wrote in a report that 'the decision-making of the Japanese side now depends on two variables—the speed of yen depreciation and the exchange rate level—rather than (just one) as before.' This means that 'there are almost infinite possibilities about when and at what level the Japanese Ministry of Finance will intervene.'

Citibank analysts predict that if the yen exchange rate approaches 162 points rapidly in the next few days, Japan will intervene and buy yen, but it is unlikely to stimulate intervention if it falls slowly.

In addition, timing is also critical. Friday afternoon in New York is the end of the full trading period this week, and market liquidity is usually poor. If Japan decides to take action at that time, it could have a greater impact.

Michael Brown, a strategist at Pepperstone Group Ltd., believes that intervening in liquidity-poor markets can 'make greater profits.'

Of course, the current advantage for the yen is that Friday's PCE data may not necessarily be bearish. It is expected that the data will show signs of continued cooling of US inflation, which will support the Federal Reserve to cut interest rates earlier this year and ease some of the downward pressure on the yen. Economists' median estimates show that the year-on-year core PCE price index for May is expected to slow to 2.60%.

Helen Given, a foreign exchange trader at Monex Inc., said, 'Considering that the US dollar has come very close to the psychological price of breaking through 160, the Bank of Japan may intervene on Friday. Market conditions may make the intervention more effective, but I'm not sure whether it will happen unless the yen falls sharply again this week.'

Edited by Jeffrey