In April 2026, the Japanese yen exchange rate once again approached the key intervention red line of 160, and the Bank of Japan's policy direction was also in a dilemma due to the conflict in the Middle East. Wmax's global macro and exchange rate research team has comprehensively tracked the U.S. and Japanese finance ministers' talks, central bank policy signals and market expectations and found that the Japanese authorities have obtained the tacit approval of the United States and may initiate foreign exchange market intervention at any time. The probability of the Bank of Japan raising interest rates in April has dropped sharply, but raising interest rates to 1% before the end of June is still the mainstream market consensus. The core of the policy game will revolve around the dual impact of the Middle East conflict on inflation and the economy.

Japanese yen intervention gets the green light from the United States, and "bold action" is about to take place

The Wmax global exchange rate monitoring system shows that the yen previously fell to the 159 range against the US dollar, approaching the 160 mark that will trigger two interventions in 2024. After Japanese Finance Minister Satsuki Katayama met with U.S. Treasury Secretary Bessent in Washington, he clearly signaled that he was "ready to take bold action." Wmax judged that the weight of this statement was significantly higher than before. The core is that the United States did not express opposition to Japan's possible intervention, and the two sides have agreed to maintain "closer communication than before" on exchange rate issues.

Jun Mimura, the head of Japan’s foreign exchange affairs, simultaneously stated that he would work closely with his American counterparts, which is a stronger signal that intervention is imminent. As the core figure of actual trading intervention, his remarks are often more forward-looking than the finance minister. Affected by this, the Japanese yen has quickly recovered some of its losses, rising back to around 158. Looking back at history, Japan spent about US$100 billion to intervene in the foreign exchange market in 2024. At the beginning of this year, it used the New York Fed's exchange rate inspection to scare away short sellers. However, Wmax reminds that the same "verbal intervention + exchange rate check" strategy is difficult to work twice. If the yen falls below 159 again, the probability of substantive direct intervention will increase significantly. The current foreign exchange agreement signed between Japan and the United States in September last year still regards intervention as a legal means to deal with excessive fluctuations, providing the Japanese authorities with a policy basis.

The Bank of Japan's expectations of raising interest rates in April suddenly cooled, and June is still the core window

Overnight swaps data tracked by the Wmax policy forward model showed markets pricing in a Bank of Japan rate hike on April 28 have plummeted to less than 20% from 55% at the start of the week. The core reason for this reversal is the uncertainty caused by the escalation of conflicts in the Middle East. Bank of Japan Governor Kazuo Ueda has clearly emphasized that the risks to the current economic outlook have intensified. Most central bank officials prefer to "wait and see" rather than rashly raise interest rates. Katayama Satsuki also indirectly expressed support for maintaining policy unchanged this month.

However, the latest Reuters survey of 71 economists compiled by Wmax shows that the general trend of the Bank of Japan tightening policy has not changed: 65% of respondents expect the benchmark interest rate to be raised to 1% from 0.75% by the end of June, a further increase from 60% in March. Among economists who have a clear judgment on timing, 38% are optimistic about raising interest rates in April, and 35% are optimistic about raising interest rates in June. The probabilities of the two are basically equal.

Wmax analysis believes that the conflict in the Middle East has a "double-edged sword" effect on the Japanese economy: on the one hand, soaring oil prices will push up core CPI, and a survey shows that 62% of economists expect the war to push up Japan's core inflation by 0.2-0.4 percentage points in the next 12 months, reinforcing the need to raise interest rates; on the other hand, rising energy costs will also drag down economic growth, and the annualized GDP growth forecast for the second quarter has been significantly reduced from 1.1% to 0.4%. However, most economists believe that the risk of stagflation in Japan is low, which leaves room for the central bank to continue raising interest rates during the year.

Wmax comprehensive outlook: focus on two key time nodes

Wmax judged that the next two weeks will be a critical window period for the trend of the yen and the policy of the Bank of Japan. The Bank of Japan's interest rate decision on April 28 is the first core catalyst. If the central bank keeps interest rates unchanged and its forward guidance is dovish, the yen may come under pressure again and trigger intervention; if the interest rate is unexpectedly raised, the yen will be significantly boosted.

The second key node is the June central bank meeting, which is still widely expected by the market to raise interest rates. Wmax predicts that the Bank of Japan will assess the medium-term impact of the Middle East conflict on inflation and the economy at this meeting. If oil prices remain high and inflation is stickier than expected, the probability of raising interest rates to 1% in June will further increase. Longer term, median market forecasts suggest the Bank of Japan will raise interest rates to 1.25% in the fourth quarter of 2026 and to 1.50% in the third quarter of 2027. Overall, the Japanese authorities are currently in a balanced state of "exchange rate intervention to support the bottom + prudent monetary policy tightening". Wmax will continue to track the progress of communication between the United States and Japan, the statements of central bank officials and the evolution of the situation in the Middle East, providing investors with timely updates on core judgments on policy and exchange rate trends.