Intervention risk rises again! After signals from Japan and the US, Japan's top foreign exchange official warns: the market should take this seriously

According to information from Zhihui Finance APP, Japan’s top currency official, Atsushi Mimura, stated on Monday that the market should take the “very clear” message about the yen issued last week by Tokyo and Washington seriously. This statement signals his readiness to take action to curb excessive depreciation of the yen. At the time of writing, the USD/JPY exchange rate has slightly fallen, quoted at 156.75.

Last Friday, Japanese Finance Minister Mitsuki Katayama gave an unusually detailed account regarding discussions about exchange rates between the leaders of the US and Japan. Katayama stated that US President Trump expressed concerns over a weak yen during his summit with Japanese Prime Minister Sanae Takaichi. As a signal of Tokyo and Washington’s joint determination to address the weak yen, Katayama and US Treasury Secretary Bessent reconfirmed in a phone call last Friday that the undervaluation of the yen is a matter of concern.

When asked about the recent depreciation of the yen, Atsushi Mimura said in an interview: “The Japanese Prime Minister, Finance Minister, and the US side have all sent a very clear message. The market should take this message at face value.” He also stated, “I will closely monitor whether the market continues to take this message seriously.”

Although Atsushi Mimura refused to comment on whether Japan might intervene again to support the yen, he said that regarding the recent trend of the yen, he is neither “satisfied” nor “reassured”—an indication that Tokyo remains vigilant about the risk of further yen depreciation.

The Bank of Japan raised its interest rate by 25 basis points as expected this month, bringing the benchmark rate to 1.25%, the highest in 31 years. However, this widely anticipated rate hike did not boost the yen, which instead weakened further. The market views comments from Bank of Japan Governor Kazuo Ueda at the post-decision press conference as disappointing for investors hoping for more hawkish remarks.

Aside from Kazuo Ueda’s lack of hawkishness, concerns about the Bank of Japan’s “insufficiently hawkish” stance were further fueled after two Monetary Policy Committee members voted against the rate hike. Reportedly, among the nine policy board members, Ichiro Asada and Ayano Sato cast dissenting votes. Asada’s reason was that the CPI increase excluding fresh food is below 2% and “the economic situation is not necessarily strong”; Sato believed that the economic and price situation has not accelerated significantly, making “a rate hike at this time inappropriate.”

As a result, traders are betting that Japanese policymakers will find it hard to keep pace with the global shift toward tighter monetary policy—this is likely to maintain a large gap between Japan’s interest rates and those of major economies, putting continued pressure on the yen against the US dollar.

Strategists believe that since the yen has continued to depreciate after the Bank of Japan’s September 18 policy meeting, 160 yen to the dollar is again becoming the level that tests Japan's tolerance for yen weakness. However, the increasing threat of intervention itself could temper yen declines. Whether intervention could trigger a lasting reversal may largely depend on whether the US participates, as history shows that when monetary policy fundamentals remain unfavorable, Japan’s unilateral action often fails to have a sustained impact.

The US joining efforts to support the yen this summer has increased the risks faced by investors betting against the yen. US Treasury Secretary Bessent has signaled support for a stronger yen multiple times, even stating bluntly that he is the "market maker" on the yen exchange rate, and warning traders betting against the yen "not to go against him."

Ray Attrill, Head of FX Strategy at National Australia Bank, said: “It is entirely possible that the dollar-yen exchange rate will return to 160, but I expect that the threat of intervention will prevent a breakout above this level.” He added that whether the US will further support Japan may depend on whether Japan is willing to raise rates faster or more substantially than the market currently expects.