Yen to USD Rapid Depreciation Warning! Central Bank Intervention Threshold Approaching [Forex Weekly Report]

Risk Focus

Last week, the foreign exchange market faced multiple pressures, with the US dollar index rising by 0.33%, and non-US currencies showing mixed performance. The Japanese yen was under the most pressure, depreciating by 1.28% during the week, while the euro fell by 0.23%, the Australian dollar declined by 0.65%, and the British pound slightly increased by 0.03%.

1. Yen approaching 160 level, Japanese government intervention window opens?

Last week, USD/JPY showed a clear upward trend, rising a total of 1.28%. The main driver was the “dovish” signal from the Bank of Japan’s rate hike decision last week.

Although the Bank of Japan raised the benchmark interest rate by 25 basis points as scheduled, Governor Ueda Haruhiko’s post-meeting comments conveyed a relatively dovish policy stance, limiting market expectations for further rate hikes. Simultaneously, the ¥18.3 trillion fiscal stimulus plan announced by Prime Minister Suga Sano further weakened the tightening effect, exerting continuous pressure on the yen.

JPMorgan issued a warning: if USD/JPY depreciates beyond the 160 level in the short term, it will be regarded as an abnormal exchange rate fluctuation, significantly increasing the likelihood of Japanese authorities initiating intervention operations.

Market opinions are divided. Sumitomo Mitsui Banking Corporation predicts that the yen will depreciate to 162 against the dollar by Q1 2026, but Nomura Securities holds the opposite view — believing that under the Fed’s rate cut environment, the dollar will remain relatively weak, and USD/JPY could appreciate to 155.

The market expects the Bank of Japan to cut rates only once in 2026, with the next rate hike window expected in October 2026.

Focus this week: Pay close attention to whether Governor Ueda Haruhiko makes hawkish statements and the verbal intervention trends of Japanese authorities. If hawkish remarks or escalated intervention measures occur, USD/JPY may face adjustment pressures.

Technically, USD/JPY has broken through the 21-day moving average, and the MACD indicator has shown a buy signal. If the price can effectively break above the key resistance at 158, further upside space will open. Support levels on the downside are at 154.

2. EUR/USD faces resistance after rally, doubts over Fed rate cuts in 2026

Last week, EUR/USD initially rose and then fell, closing down by 0.23%. The European Central Bank maintained its interest rate policy unchanged, and President Lagarde did not provide hawkish guidance as expected by the market.

US data showed mixed signals: November non-farm payrolls underperformed expectations, and November CPI was also below market forecasts. Major investment banks like Morgan Stanley and Barclays pointed out that the data might have technical distortions and statistical biases, making it difficult to accurately reflect economic trends.

The market currently expects the Fed to cut rates twice in 2026, with a 66.5% probability of the first cut in April.

Institutions are generally optimistic about the euro’s prospects. Danske Bank believes that as the Fed begins its rate-cut cycle while the ECB remains on hold, the real interest rate differential after inflation adjustment will narrow, supporting a stronger euro against the dollar. Additionally, the recovery of European assets, increased hedging demand against the dollar, and declining confidence in US policies could also drive the euro.

Focus this week: US Q3 GDP data and geopolitical developments. Better-than-expected GDP will benefit the dollar and pressure EUR/USD; otherwise, it will be bullish for EUR/USD.

From a technical perspective, EUR/USD is trading above multiple moving averages, with short-term potential for further gains. Resistance is near the previous high of 1.18. If a correction occurs, the 100-day moving average at 1.165 will be an important support level.