Japan's Finance Minister stated that US Treasury Secretary Yellen "fully understands" Japan's yen intervention policy, and communication between the two sides was "extremely smooth." Following the meeting, the yen briefly strengthened by about 100 pips before quickly falling back to 157 against the dollar, casting doubt on the effectiveness of official intervention. Analysts warn that if the yen weakens past the 158 level, a new round of intervention could be triggered at any time. However, the real key to the yen's direction remains the uncertainty over whether the Bank of Japan will raise interest rates. Japan and the United States have coordinated their positions on exchange rate policy. Japanese Finance Minister Shunichi Suzuki stated on Tuesday that US Treasury Secretary Janet Yellen "fully understands" Japan's yen intervention policy, and that coordination between the two sides on recent market developments, including exchange rates, was "extremely smooth." Yellen later posted on the X platform that communication and coordination between the two sides in addressing "excessive and undesirable exchange rate volatility" were "ongoing and robust." After the meeting, the yen briefly strengthened by nearly 100 pips to 156.75 per dollar, but the US dollar quickly recovered its losses, with the latest rate at 157.72 yen per dollar. Nomura Securities foreign exchange strategist Yujiro Goto noted that Suzuki's remarks did not send a clear signal supporting further intervention, failing to drive sustained yen strength. US and Japan coordinate on FX stance but leave room for interpretation. The meeting between Suzuki and Yellen lasted approximately 25 minutes. Suzuki stated at a post-meeting press conference that the two sides discussed "market developments, including exchange rate movements," and reached a coordinated view on recent market trends. However, there were prior expectations that Yellen's visit might provide clear US endorsement for Japan's intervention actions. Both sides' statements, however, were carefully worded. Yellen's post on the X platform emphasized "communication and coordination" but did not directly endorse Japan's market intervention operations. According to foreign exchange analysts' estimates, Japan has spent approximately $63.7 billion over the past two weeks intervening in the foreign exchange market to support the yen. Despite this, the yen continues to hover near levels where the market anticipates authorities might intervene again. Goto stated, "If the yen weakens further toward the 158 or 159 yen range, the possibility of another intervention remains." Yellen favors BoJ rate hikes over direct intervention. Yellen has previously expressed concern about the yen's weakness against the US dollar, with the US administration viewing a weak yen as unfairly benefiting Japanese exporters. However, according to a report by the Financial Times, Yellen prefers that the Bank of Japan support the yen through monetary policy tightening rather than relying on direct market intervention by authorities. This stance aligns with a previous consensus reached by the US and Japan. In a joint statement last September, both sides agreed that exchange rate interventions should be used only to curb excessive market volatility. Most economists believe that interest rate hikes provide a more fundamental and lasting support for a currency. Currently, economists are divided on whether the Bank of Japan will raise interest rates at its June meeting. The central bank kept its policy rate unchanged at around 0.75% at its April meeting, despite three members of the policy board holding hawkish views. The summary of opinions from the April policy meeting, released on Tuesday, revealed significant internal division within the committee on whether to raise rates sooner rather than later. Japan's 10-year government bond yield rose to 2.545% on Tuesday, a three-decade high, reflecting growing market expectations for a June rate hike. Japan's economic pressures increase the need for intervention. A weak yen directly pushes up prices in Japan, which is highly dependent on imported energy, food, and other raw materials, putting pressure on household consumption. Government data released on Tuesday showed that Japanese household spending fell by 2.9% year-on-year in March, a decline far exceeding economists' expectations. Consumer confidence also fell sharply due to ongoing tensions in the Middle East. Bank of Japan Governor Kazuo Ueda is weighing two risks: falling behind the curve in controlling inflation, and the possibility of pushing the Japanese economy into recession if conflict in the Middle East persists.
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