[Edaily Reporter KIM JUNG YOU ] It has been confirmed that the Japanese government carried out its largest-ever single-day yen-buying intervention last July. As the value of the yen plummeted to its lowest level in 40 years, the government poured 7.98 trillion yen (approximately 68 trillion won) into the market in a single day. Nevertheless, forecasts regarding the yen’s future direction remain sharply divided. While some warn that downward pressure will persist due to risks in the Middle East, others predict the yen will rebound next year following an interest rate hike by the Bank of Japan (BOJ).

According to a Reuters report on the 9th, the Japanese Ministry of Finance released its quarterly foreign exchange intervention data that day, revealing that it had intervened in the foreign exchange market for three days from July 30 to August 3. The largest intervention took place on July 30. The total amount injected that day was 7.98 trillion yen, surpassing the previous single-day record of 6.28 trillion yen (approximately 53.4 trillion won) set on April 30. This is the largest amount since the Ministry of Finance began releasing such data in 1991.

Yen intervention continued thereafter. Japan injected an additional 5.55 trillion yen (approximately 47.2 trillion won) on July 31 and 1.87 trillion yen (approximately 16 trillion won) on August 3. Notably, on July 31, the United States also carried out joint intervention by selling euros and buying yen. South Korea also took action in response. At that time, the Bank of Korea carried out won-buying interventions timed to coincide with Japan’s interventions in order to maximize effectiveness.

The Japanese government undertook such large-scale intervention because the value of the yen had plummeted. At the time, the yen fell to nearly 164 yen per dollar, its lowest level in 40 years. This year, the yen has traded at an average of around 158 yen per dollar.

Warnings are emerging in the market that the yen’s weakness will not end anytime soon. Tsuyoshi Ueno, chief economist at the Nissay Research Institute, said, “The exceptionally large scale of the intervention demonstrates the Japanese government’s desperation to halt the yen’s decline,” adding, “Since the Iran issue—the main cause of the yen’s weakness—has not yet been resolved, the yen may continue to face downward pressure.” Furthermore, a currency expert who ranked first in Bloomberg’s exchange rate forecast evaluation for the previous quarter also predicted that “the yen will weaken to 170 yen per dollar next year.”

However, there are also opposing views on the yen’s future direction. Neil Parker, Head of Economics and Market Strategy at TTT Moneycorp, who ranked first in Bloomberg’s latest assessment of the accuracy of dollar-yen exchange rate forecasts, predicted, “The yen will strengthen to around 155 yen by the end of the year and then rise to 147 yen next year.” Having analyzed the yen for about 30 years, he believes the interest rate gap between the U.S. and Japan will narrow as the Bank of Japan (BOJ) raises interest rates faster than the market expects.

Parker predicted that the BOJ would raise its benchmark interest rate—currently at 1.25% per annum—to at least 2% and as high as 2.25%. In contrast, he expects the U.S. Federal Reserve (Fed) to raise rates one more time next month before pausing at a range of 4.00% to 4.25% per annum. “The BOJ may be the only central bank that actually keeps its promise to raise rates in line with inflation,” he said, predicting that, unlike other central banks, the BOJ will see its tightening policy through to the end.

The key factor is inflation. The Consumer Price Index (CPI) excluding fresh food and energy—which the BOJ closely monitors as a core inflation indicator—rose 2.4% year-over-year in September. Parker noted, “If that figure rises above 2.6%, the BOJ could accelerate the pace of tightening.”

Analysts suggest that capital flows could shift if the interest rate differential narrows. Parker explained, “If the U.S.-Japan interest rate gap narrows by about another 0.5 percentage points by the middle to late part of next year, investor expectations could change,” adding, “Even a small return of capital that had previously shunned Japanese assets would be enough to boost the value of the yen.”

Ultimately, the yen’s direction hinges on the situation in the Middle East and the pace of the BOJ’s rate hikes. Parker emphasized, “The exchange rate outlook isn’t about predicting exactly where the rate will go,” adding, “It’s about assessing where it will go relative to what other market participants expect.”