Japan's top currency affairs official, Atsushi Mimura, said on Monday that the market should take seriously the "very clear" messages sent by Tokyo and Washington last week regarding the yen.
This statement signals his readiness to take action to curb excessive yen depreciation. As of the time of writing, the USD/JPY exchange rate edged slightly lower, quoted at 156.75.
Japanese Finance Minister Satsuki Katayama gave an unusually detailed account last Friday of discussions between the leaders of the United States and Japan concerning exchange rates.
Katayama stated that U.S. President Trump expressed concern about yen weakness during his summit meeting with Japanese Prime Minister Sanae Takaichi. As a signal of Tokyo and Washington's shared determination to address yen weakness, Katayama reconfirmed in a phone call with U.S. Treasury Secretary Bessent last Friday that the yen's undervaluation is a concerning issue.
Speaking about the recent yen depreciation in an interview, Mimura said: "The Japanese Prime Minister, the Finance Minister, and the U.S. side have all sent very clear messages. The market should take this message at face value." He also said: "I will closely watch whether the market will continue to take this message seriously."
Although Mimura declined to comment on whether Japan might intervene again to support the yen, he said that regarding the yen's recent movements, he is neither "satisfied" nor "reassured"—indicating that Tokyo remains vigilant against the risk of another yen decline.
The Bank of Japan raised interest rates by 25 basis points as scheduled this month, lifting the benchmark rate to 1.25%, the highest level in 31 years.
However, this widely anticipated rate hike failed to boost the yen, and the yen instead weakened. The market believes that comments made by Bank of Japan Governor Kazuo Ueda at the post-rate-decision press conference disappointed investors who had expected more hawkish remarks.
In addition to Ueda's insufficiently hawkish comments, two members of the Bank of Japan's monetary policy committee voted against the rate hike, raising concerns that the central bank is "not hawkish enough." It is understood that among the nine policy members, Toichiro Asada and Ayano Sato cast dissenting votes. Asada's reason was that the CPI excluding fresh food rose less than 2% and "the economic situation is not necessarily strong"; Sato believed that the economic and price situation had not significantly accelerated and "raising rates at this time is not appropriate."
As a result, traders are betting that Japanese policymakers will struggle to keep pace with the global central bank shift toward hawkishness—which will maintain a large gap between Japanese interest rates and those of major economies, and the yen may continue to face pressure against the dollar.
Strategists believe that given the yen's continued depreciation after the Bank of Japan's September 18 policy meeting, 160 yen per dollar has once again become the level that tests Japan's tolerance for yen weakness.
However, the growing threat of intervention itself may curb the yen's decline. But whether intervention can bring about a lasting reversal may largely depend on whether the United States participates, because historically, when monetary policy fundamentals remain unfavorable, Japan's unilateral operations have often struggled to produce sustained effects.
The United States joined the effort to support the yen this summer, increasing the risks faced by investors betting against the yen. U.S. Treasury Secretary Bessent has repeatedly signaled support for a stronger yen, even stating bluntly that he is "the house" on the yen exchange rate, warning traders shorting the yen "not to bet against him."
Ray Attrill, head of FX strategy at National Australia Bank, said: "The USD/JPY exchange rate could absolutely return to 160, but I expect the threat of intervention will prevent a break above this level." He added that whether the United States will further support Japan may depend on whether Japan is willing to raise interest rates faster or by a larger margin than the market currently expects.
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