On Tuesday (January 7th), the USD/JPY fell to its weakest level since July last year, underperforming all major currencies. Analysts attributed this decline to the outflow of funds from Japanese retail investors and the impact of the Tokyo benchmark exchange rate.

The weakening of the Japanese yen is caused by investments in Japanese personal savings accounts (NISA) and fund flows related to the Tokyo benchmark exchange rate.

The depreciation of the Japanese yen has prompted Japanese Finance Minister Katsuyuki Kato to issue a warning, stating that the authorities will take appropriate measures to address excessive volatility. Subsequently, the Japanese yen regained some lost ground. As of press time, the yen fell 0.1% against the US dollar to 157.75, while earlier it had fallen to 158.42, a drop of up to 0.5%.

With the arrival of the new year, there may be a yen sell-off caused by overseas investments through NISA, "said Akira Moroga, Chief Market Strategist at Qingkong Bank." After adjusting the benchmark exchange rate, the US dollar against the Japanese yen broke through recent highs, so there has also been a trend following buying of the US dollar

Another reason for the depreciation of the Japanese yen is the bleak outlook for the Bank of Japan's recent interest rate hikes. Bank of Japan Governor Kazuo Ueda reiterated on Monday that if the economy continues to improve, interest rates may be raised this year, but did not provide clear guidance on the Bank of Japan's decision this month.

Barclays Bank has postponed its expectation of the Bank of Japan raising interest rates to March instead of January due to the uncertainty of domestic and international political situations. Bank of America and Nomura Holdings have also made similar adjustments. The overnight index swap shows a probability of 47% for a rate hike in January and 76% for a rate hike in March.

The depreciation of the yen may be due to a lack of market expectations for the Bank of Japan to raise interest rates at its January meeting, "said Takeru Yamamoto, a trader at Sumitomo Mitsui Trust Bank in New York." Japanese authorities may be cautious about the yen at the 158 level

Yen observers will focus on the upcoming US economic data this week, including Friday's employment report. Stronger than expected employment data may delay the expectation of a US interest rate cut, further exacerbating the depreciation of the yen.

If the US data is strong, the USD/JPY may rise to nearly 159, but in this case, the vigilance of intervention may be further enhanced Moroga stated.