Japanese authorities may step into currency markets if the Bank of Japan (BoJ) sticks to its current monetary policy at this month’s meeting, Citi said in a recent report. The bank warned that continued policy stability could push the dollar above ¥160 against the yen, a level that could trigger official action aimed at pulling the rate back toward around ¥155.
Yen under pressure despite softer dollar
The yen has stayed weak even as the dollar lost ground in April. While the U.S. currency eased, the euro advanced, driving the euro/yen pair to a record high during the month.
The foreign exchange market initially reacted to the outbreak of the Iran conflict in March with a familiar move into the dollar as a safe haven. But as tensions persisted and the dollar later weakened, the yen failed to recover meaningfully and remained near its recent lows against major currencies.
Policy gap drives currency weakness
The current situation reflects a sharp divergence in monetary policy. Japan’s central bank continues to maintain very low interest rates, in contrast to higher rates in other major economies. This rate gap makes the yen less attractive for those seeking higher returns and is the main force driving the dollar higher against the Japanese currency.
The ¥160 mark is widely seen as a critical line that has previously invited government intervention to curb excessive yen depreciation. As that level comes into view, officials have stepped up warnings about rapid, one-sided currency moves.
Finance Minister Satsuki Katayama has said authorities stand ready to act “decisively” if needed and has held talks with U.S. Treasury officials, fueling speculation that direct market operations may be under consideration.
Political pressure for a stronger yen
Prime Minister Sanae Takaichi’s administration has repeatedly signaled that it prefers a more stable yen to ease the burden of higher import costs on households and businesses. That stance provides a political backdrop that favors a stronger response if currency weakness persists.
Citi’s report said the success of Takaichi’s efforts to stabilize the yen will depend heavily on fiscal discipline and a clear demonstration of the BoJ’s independence. Markets are watching whether the government and central bank can show a united and credible framework for managing inflation and currency stability.
Focus on BoJ meeting amid Middle East risks
Attention is now fixed on the BoJ’s policy meeting scheduled for April 27–28. The decision is complicated by ongoing geopolitical tensions in the Middle East, which could lift energy prices and feed through to domestic inflation.
Kazuo Momma, a former BoJ executive director, noted that the central bank tends to wait when uncertainty is high, making the policy outcome hard to predict. That caution has been echoed by the International Monetary Fund, which recently urged Tokyo to communicate clearly with markets to anchor expectations during a tense global backdrop.
Rising wages raise stakes for BoJ
Domestic data add further complexity. Japan’s nominal wages in February 2026 rose 3.3% from a year earlier, the fastest pace since July 2025. Real wages, adjusted for inflation, also increased for a second straight month, a key gauge of household purchasing power closely watched by the BoJ.
Separately, the third tally of the 2026 spring wage negotiations showed an average pay increase of 5.09%, marking the third consecutive year above 5%. Sustained wage gains are a central condition for the BoJ to shift away from ultra-loose policy.
Carry trades at risk from policy shift or intervention
For weeks, the low cost of borrowing yen has underpinned so‑called carry trades, in which market participants borrow the Japanese currency to buy higher-yielding assets abroad. This strategy has supported leveraged positions in riskier markets and assets.
Any surprise move by BoJ Governor Kazuo Ueda to tighten policy, or a forceful government intervention to strengthen the yen, could trigger a rapid unwinding of these trades.
Such a reversal would sharply raise funding costs and could spark broad selling across global asset classes that have benefited from yen-funded liquidity, amplifying the impact of any policy or intervention shock.
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