Executive Summary
The Japanese yen trades at ~159.8 against the US dollar (USD/JPY convention: rising = JPY weakening), representing a ~41% undervaluation versus OECD PPP and sitting near the psychologically and politically critical 160 level that triggered ~$100bn of MoF intervention in 2024. The yen has weakened ~2% over the past month and ~7-10% over six months despite the BoJ hiking to 0.75% — the highest rate since 1995 — because the Iran-US war ("Operation Epic Fury") has pushed Brent crude up ~55% to $110-118/bbl, devastating Japan's terms of trade as a ~90% energy importer. The central tension is between a BoJ poised to hike to 1.00% on April 27-28 (~70% OIS probability), MoF intervention rhetoric at maximum alert ("decisive measures" language from Vice FM Mimura on March 30), and a structural carry trade (~$500bn outstanding per Morgan Stanley) that continues to fund JPY shorts. The tactical stance is Bullish JPY (conviction 3/5) on the view that the convergence of a BoJ hike, intervention risk at the 160 trigger level, and moderately short speculative positioning creates asymmetric risk-reward for JPY strength over the next 2-4 weeks, while the strategic stance is also Bullish JPY (conviction 2/5) as the rate differential narrowing thesis faces persistent headwinds from Japan's energy vulnerability and Takaichi's reflationary fiscal policy.