Japan Issues Final Warning Ahead of Possible Intervention, Boosts Yen

Japan's Currency Officials Issue Final Warning to Speculators

Japan's top currency officials have issued a "final" warning to speculators after the yen slipped to its weakest level since the nation's last salvo of market interventions in 2024. The warning comes as the yen continues to weaken against the dollar, hitting a low of 159.23 on Thursday.

Finance Minister Satsuki Katayama said that the time for taking bold steps is now nearing, a phrase that typically refers to currency intervention when spoken by Japanese finance officials. FX Chief Atsushi Mimura added that he was in contact with his US counterpart around the clock, hinting that they had a green light from Washington to take action if needed.

The warnings helped firm up the yen to as much as 159.23 against the dollar, compared with 160.72 earlier in the day. The interest rate differential between the US and Japan has been a factor weighing on the currency, as has the recent decision by the Bank of Japan and the US Federal Reserve to hold policy settings steady.

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The yen's weakness comes in the wake of decisions by the Bank of Japan and the US Federal Reserve to hold policy settings steady. Tensions in the Middle East and soaring oil prices are also playing a role in the yen's decline. Japan's heavy reliance on oil from the region raises the risk of a deteriorating balance of trade.

Katayama said that ministry officials would be monitoring the currency market even when much of Japan shuts for the Golden Week holidays that stretch through Wednesday next week. The yen crossed the 160 threshold and then continued to weaken after the Fed held interest rates steady overnight, with a deepening division over the US policy outlook implying less support for cutting rates.

Analysts are divided on when the ministry will make the call to intervene in the market. Some, like Atsushi Takeda, chief economist at Itochu Research Institute, see the ministry making the call around the mid-160 level. Others, like Junya Tanase, chief Japan FX strategist at JPMorgan Chase & Co., see a move before then.

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Investors increasingly see intervention in the market as the only near-term lever to stem the yen's slide, as central banks delay adjusting interest rates and Middle East tensions push oil prices higher. Some cite BOJ Governor Kazuo Ueda's reluctance to signal a near-term rate move as a factor that will keep pressure on the yen.

Mimura reiterated that Japan's focus is on all fronts, and that the government is looking beyond the FX market. The interventions to prop up the yen in 2024 also followed a stand-pat decision by the BOJ that April and started with a move during the Golden Week holiday.