Japan's top government spokesman reiterated on Thursday that authorities stand ready to respond to exchange-rate fluctuations whenever necessary, as the yen's renewed fall tests Tokyo's willingness to support the currency.
Chief Cabinet Secretary Minoru Kihara told reporters at a regular briefing, "We are ready to respond appropriately to currency moves as needed at any time," when asked about the recent decline in the yen.
Kihara acknowledged the trade-offs created by a weaker yen, noting it can bolster corporate earnings by making it easier for manufacturers to export domestically produced goods. At the same time, he said, a softer currency raises costs for companies and households through pricier imports. "We need to scrutinise such effects comprehensively," he added, and said the government will watch market developments closely.
The yen's slide has been driven in part by a broad rally in the dollar as investors increased bets that the Federal Reserve's next move could be a rate hike rather than a cut. The currency briefly fell to 160.795 per dollar on Wednesday, a level not seen in nearly two years and one that eliminated gains secured after Tokyo's April 30 intervention. On Thursday the yen was quoted at 160.76 per dollar.
Tokyo's April intervention involved large-scale purchases of yen, and data show authorities spent a record 11.7 trillion yen, equivalent to $72.87 billion, in late April and early May to support the currency. That intervention generated only a temporary rebound, and the yen has since given back all post-intervention gains.
Complicating the currency picture is the gap between Japanese and U.S. policy interest rates. The Bank of Japan last week moved to raise rates to a 31-year high on Tuesday, but its policy rate remains at just 1.0 percent, well below the Federal Reserve's 3.50 percent to 3.75 percent range. That divergence has limited the effectiveness of the BOJ's tightening in stabilising the yen.
Finance Minister Satsuki Katayama warned last week that authorities were "always prepared to take decisive measures." Despite that stance, Japan's chief currency diplomat, Atsushi Mimura, has not commented on the yen since early May, a period that coincided with the resumption of large-scale intervention in foreign exchange markets.
The Fed kept rates unchanged on Wednesday but signalled the likelihood of a hike later in the year amid renewed inflation worries. That hawkish tilt for the United States represents a challenge for Japan, where a persistently weak yen is pushing up import costs and amplifying domestic price pressures.
Energy costs have been affected by the Middle East conflict, which has driven fuel prices higher. The BOJ has warned that this energy shock risks leaving it behind the curve on inflation. Seisaku Kameda, the central bank's former top economist who is now executive economist at Japan's Sompo Institute Plus, said the BOJ's most important shift on Tuesday was framing its rate move as being intended to avoid falling behind the inflation curve rather than signalling that Japan had made progress toward its price target.
Kameda added that if easing tensions in the Middle East lead to lower oil prices, the BOJ may feel less pressure to raise rates further. Still, he said it is likely the BOJ will raise rates again, possibly in October or December.
Market sentiment toward the yen has remained weak despite those prospects for further BOJ tightening. Futures data showed speculative net short positions in the yen reached the highest level since July 2024 on Friday, underscoring bearish investor positioning.
Ataru Okumura, a senior rate strategist at SMBC Nikko Securities, noted the widening gap between domestic and overseas monetary policies as a major driver of recent yen weakness. He predicted that intermittent interventions by authorities mean the dollar-yen pair is unlikely to push far above the 160 level. "But recognising that this situation is not sustainable, the Bank of Japan will likely be forced to raise interest rates slightly earlier than anticipated," Okumura said.
Market participants continue to weigh the balance between Tokyo's readiness to act in the foreign exchange market and the structural pressures stemming from divergent monetary policies and higher import costs. For now, the dollar trades around $1 = 160.5600 yen as investors monitor developments in policy, energy markets, and global rate expectations.
Summary
Japan's government has reaffirmed that it can intervene in currency markets at any time to counter disorderly moves in the yen. The currency has weakened toward the 160 per dollar area following a stronger dollar and growing expectations of further Fed tightening. While authorities spent a record 11.7 trillion yen in late April and early May supporting the yen, those actions have not produced lasting gains. The BOJ has raised rates to a 31-year high but its policy rate remains far below U.S. levels, keeping upward pressure on import costs. Officials and market strategists warn the situation is unsustainable and further BOJ hikes are possible later in the year.
Key points
- Tokyo says it is prepared to act at any time to respond to currency moves, balancing the benefits to exporters against higher import costs for firms and households.
- Japanese authorities spent a record 11.7 trillion yen ($72.87 billion) in late April and early May supporting the yen, but the currency has returned to pre-intervention levels.
- Widening interest-rate differentials between Japan and the United States, along with higher energy costs from the Middle East conflict, are key pressures on the yen and domestic inflation.
Risks and uncertainties
- Renewed dollar strength and expectations of U.S. rate hikes could continue to weaken the yen, increasing import costs for energy and goods and affecting corporate and household budgets.
- Intermittent interventions may prove temporary unless the underlying interest-rate gap narrows, leaving currency stability uncertain for exporters, importers, and financial markets.
- Volatility in energy markets tied to the Middle East conflict could sustain higher fuel costs and complicate the BOJ's inflation response, with implications for monetary policy timing and market rates.