On Wednesday this week, the yen against the US dollar fell by nearly 0.3% to 155.10. This is the first time since July this year that the yen has dropped below the key psychological barrier of 155, increasing the risk of Japanese authorities intervening in the foreign exchange market.

The yen suffered a 'Trump impact'

The direct cause of this round of yen depreciation is that after Trump's victory, US Treasury yields soared, putting pressure on the yen. As of the time of publication, the US two-year Treasury yield has reached its highest level since July.

This round of impact has brought the yen close to the levels of July this year, significantly increasing the risk for Japanese foreign exchange officials to intervene again to boost the yen. According to a survey conducted by foreign media last month among 53 economists, the median expected level of the yen exchange rate that may trigger Japanese authorities' intervention measures is 160.

Shoki Omori, Chief Japan Strategist at Tokyo Mizuho Securities, said: 'Based on our conclusions from US CPI, PPI, and retail sales data, if the Japanese Ministry of Finance does not verbally intervene, we may see a rapid appreciation of the USD against the yen.'

After Trump won the election, it is widely predicted that his economic policies may slow down the cooling of US inflation or even cause it to rise, which could lead to the Federal Reserve slowing down its planned interest rate cuts, or reducing the size of the rate cuts. This could slow down the pace of narrowing the US-Japan interest rate spread, further weakening the yen.

The Bank of Japan may take action again.

Currently, forex traders are closely monitoring the intervention methods the Japanese authorities may take.

This year, Japan spent a record 9.8 trillion yen (approximately $63 billion) in late April and early May interventions, and another 5.5 trillion yen (approximately $35.4 billion) to support the yen after it fell to its lowest point since 1986 in early July.

The ongoing weakness of the yen may also prompt the Bank of Japan to consider raising interest rates early. In October of this year, Bank of Japan Governor Haruhiko Kuroda admitted at a press conference that the exchange rates have been affecting Japan's price trends.

"If the Bank of Japan does not raise interest rates and the Fed is not so dovish, the yen may touch 158 yen by the end of the year," said Omori of Mizuho Securities.

According to former Bank of Japan official Kazuo Momma, in July of this year, the Bank of Japan's decision to raise interest rates was driven by 80-90% by the weakness of the yen.

Based on overnight index swaps, traders currently believe the likelihood of the Bank of Japan raising interest rates at the December policy meeting is close to 50%.

Tonight may be a crucial moment.

On Wednesday night, Beijing time, the US Bureau of Labor Statistics is set to release the US CPI data for October, which could be a key factor affecting the future trend of the Japanese Yen.

In theory, if the CPI data is higher than expected, it will reduce the likelihood of a Fed rate cut in December, thereby boosting the US dollar exchange rate, and vice versa.

Neil Kashkari, President of the Federal Reserve Bank of Minneapolis, said that if today's inflation data is unexpected, it could disrupt the Fed's rate cut plan for December. Therefore, this data is also important for Japanese Yen observers.

However, Charu Chanana, Chief Investment Strategist at Bank of Singapore, said: "Even if today's inflation data is slightly higher than expected, the Fed may still attempt a slightly more aggressive rate cut... This may limit the downside pressure on the Japanese Yen in the short term. However, given the potential for the Fed's final rate to rise and the slowing pace of normalization by the Bank of Japan, the risks for the Yen still tend to be downward."

Editor/ping