Japanese government officials are quietly changing their approach to defending the yen, moving away from advance warnings and toward surprise currency market interventions designed to catch speculators off guard, according to two sources familiar with the situation.
In the past, Japan’s Ministry of Finance typically signaled its intentions before stepping into currency markets, giving traders time to adjust their positions. Now, according to the sources, officials are deliberately staying silent to keep markets guessing — using that uncertainty as a tool to raise the cost of betting against the yen.
Rather than pointing to a specific exchange rate as a trigger for action, officials are now focused on the buildup of speculative bets against the yen as the key factor that could prompt intervention. The sources spoke on condition of anonymity given the sensitivity of the issue.
The Ministry of Finance’s quieter approach, combined with continued hawkish statements from the Bank of Japan, appears to reflect a coordinated effort to push back against yen bears, two additional sources said.
Even after raising interest rates last month, the Bank of Japan has continued issuing warnings about how a weak yen drives up inflation. BOJ Deputy Governor Ryozo Himino stated in June that “currency moves are among key factors affecting Japan’s economy and inflation,” noting that rising import costs from a weak yen could push underlying inflation higher — a concern echoed by other board members.
The yen recently fell to a 40-year low of 162.66 per dollar and was trading at 162.50 during midday Thursday in Tokyo. Japan had already spent a record 11.7 trillion yen — roughly $72 billion — intervening in foreign exchange markets between late April and early May, but that boost to the currency was short-lived.
Because the earlier intervention was well-telegraphed, traders had time to unwind their short positions and avoid major losses. Any future action would not offer that luxury, according to sources.
“The timing of intervention is difficult. The purpose would be to hit speculators hard so if needed, authorities will step in,” one source said, a view shared by another. The same source added that “it’s not about yen levels” but rather about preventing excessive drops in the currency.
The decision on when to act rests with Japan’s top currency diplomat Atsushi Mimura, who has avoided issuing any verbal warnings since the last intervention. Finance Minister Satsuki Katayama also held back from escalating official language on Tuesday despite the yen’s fresh lows, saying only that Japan was prepared to “respond appropriately” to currency moves at any time.
Some within the Japanese government are hoping that U.S. jobs data released Thursday would reduce market expectations of an early interest rate increase by the Federal Reserve. A pullback in those expectations could slow the dollar’s rise and help reverse the yen’s slide. If that doesn’t happen, the likelihood of intervention could grow, the sources said.
“By refraining from commenting on the yen, Mimura is probably trying to make it harder for markets to gauge the next intervention timing,” said Rinto Maruyama, FX and rates strategist at SMBC Nikko Securities.
Japan is also watching its G7 partners closely, particularly the United States, whose backing is considered important because currency intervention is generally only justified when markets are behaving in a disorderly way. The yen’s slow, steady decline has raised investor questions about whether Washington would support another round of intervention.
U.S. Treasury Secretary Scott Bessent has indicated a need for further Bank of Japan rate hikes while remaining silent on Japan’s most recent currency market actions.
The gap between Japan’s policy rate — currently at 1% — and the Federal Reserve’s rate of 3.50% to 3.75% remains wide, continuing to encourage yen-selling. Hawkish commentary from the Fed has further boosted the dollar.
The Bank of Japan and the Ministry of Finance have a history of working together on currency issues, including in July 2024, when the BOJ raised its policy rate to 0.25% just weeks after the MOF intervened to support the yen.
BOJ officials have repeatedly noted that yen weakness is having a larger inflationary impact than in the past, as more companies are now passing higher import costs on to consumers. A quarterly business survey released Wednesday showed business sentiment climbing to its highest point in eight years, with corporate inflation expectations hitting record highs — reinforcing the argument for additional rate increases.
“Japan’s policy rate remains low compared with that of other countries. The BOJ’s cooperation is necessary to stop the yen’s falls,” said Mari Iwashita, executive rates strategist at Nomura Securities.
($1 = 162.5100 yen)
