During European trading on Wednesday, the Japanese yen exchange rate continued to decline and fell below 160, the first time since April 29th. The efforts by the Japanese authorities to depreciate the yen were completely wiped out. On Tuesday, the Japanese Vice Minister of Finance conducted verbal intervention and stated that they can intervene at any time, 24 hours a day, to support the currency. However, currently, the effect seems to be minimal. The product structure shows that the operating income of 100-300 billion yuan products is 401/1288/60 million yuan respectively.

Previously, after the Japanese yen against the US dollar fell below the 160 level, the trend was significantly reversed. This triggered speculation that the Japanese authorities may intervene again to support the currency. As the yen against the US dollar fell to a 34-year low, the Japanese authorities spent 9.8 trillion yen ($612 billion) to support the yen from April 26 to May 29. This amount exceeded the total amount used to support the yen in 2022. Yen fluctuation showed that intervention had occurred on April 29 and May 1. The Japanese authorities, including Finance Minister Toshimitsu Suzuki, stated that they are closely monitoring the development of the currency market and will take all necessary measures as needed.

Fxstreet analyst Kathleen Brooks pointed out that the reason for the weakness of the Japanese yen is the huge interest rate difference between Japan and other regions in the world. Therefore, if the Japanese authorities want to truly strengthen the yen, they can raise interest rates and try to normalize policies. Brooks said, 'This may not cause too much controversy because the weakness of the yen is putting a heavy burden on Japanese households.' As import prices soar, the Japanese authorities must deal with rising inflation, which also puts pressure on consumption. Wage growth is also lower than the inflation rate, which increases the pressure on the Japanese authorities to take action.

Some people believe that the Bank of Japan needs to adjust its monetary policy and narrow the interest rate gap with the United States and other countries, as this is the most effective way to boost the yen. However, this also requires the Bank of Japan to change its priorities from maintaining low yields and stability to normalizing monetary policy.

Regarding the next step of Japan's monetary policy, Brooks said that the Bank of Japan is still buying 38 billion US dollars of Japanese government bonds every month and is expected to reduce it at the next Bank of Japan meeting at the end of July. According to data from the Japanese overnight index swap market, there is a 56% chance of raising interest rates at the July meeting.

Later this week, the release of some key data may highlight the urgency for the Bank of Japan to take action. Tokyo's CPI in June is a leading indicator for Japan's CPI and will be announced on Friday. Analysts predict that Tokyo's overall and core CPI in June will both rise. Tokyo's CPI has fallen since reaching a high point in the first quarter of last year, but it has stubbornly hovered around 2% and is heating up again. If the pressure of rising prices in Tokyo is confirmed on Friday, the market may play games with Japanese officials and force them to intervene to prevent the yen from weakening.

According to data from the Japanese overnight index swap market, there is a 56% chance of raising interest rates at the July meeting.

Later this week, the release of some key data may highlight the urgency for the Bank of Japan to take action. Tokyo's CPI in June is a leading indicator for Japan's CPI and will be announced on Friday. Analysts predict that Tokyo's overall and core CPI in June will both rise. Tokyo's CPI has fallen since reaching a high point in the first quarter of last year, but it has stubbornly hovered around 2% and is heating up again. If the pressure of rising prices in Tokyo is confirmed on Friday, the market may play games with Japanese officials and force them to intervene to prevent the yen from weakening.