Japan's top monetary authorities are countering yen depreciation by leveraging rare support from the United States, employing strategic silence and cautious communication to drive a significant yen appreciation without resorting to large-scale foreign exchange market intervention.
The core executor of this strategy is Japan's top currency diplomat, Atsushi Mimura, whose infrequent public statements have themselves become a policy signal.
According to sources familiar with his thinking, Mimura does not frequently comment on forex market movements but deliberately controls the rhythm of changes in his tone. This communication method keeps speculators guessing about when, or even if, the Japanese government will intervene in the currency market.
"The efficiency is surprisingly high, as the Japanese side has driven the dollar-yen rate down by about 7 yen while conserving its policy firepower," said Shusuke Yamada, FX & rates strategist at Mitsubishi UFJ Morgan Stanley Securities.
Since last weekend, the yen has experienced three significant appreciations, with the most dramatic fluctuation occurring after news emerged that the New York Federal Reserve conducted an unusual rate check—a move that alerted investors to the possibility of the first joint currency intervention by the US and Japan in 15 years.
Although US Treasury Secretary Scott Bessent denied that the US intervened to support the yen, former Japanese monetary officials stated that, given the US's historical opposition to forex intervention, the American participation in the rate check itself represents a major breakthrough for Japan.
They claimed that even US involvement at the level of a rate check reinforces a market perception that the US and Japanese governments share a unified stance on curbing the yen's decline.
The Japanese government has maintained deliberate silence on daily forex fluctuations, only repeatedly stating that it is closely coordinating with relevant US authorities.
"Maintaining silence makes the market think they must be taking some action behind the scenes. This silence continuously fuels market speculation and increases uncertainty," said Yuji Saito, Executive Director Advisor at SBI FX Trading.
Atsushi Mimura assumed the role of Japan's Vice Minister of Finance for International Affairs in 2024. In his 37-year government career, nearly one-third of that time was spent at Japanese financial regulatory agencies. He previously admitted that his communication style is deliberate.
Upon taking office in this position, responsible for formulating Japan's exchange rate policy and coordinating international economic policies, he told Reuters, "Always speaking directly is one method of communication, while maintaining silence might be another."
The advantage of this strategy is that it avoids the need to commit huge sums of money for costly forex intervention. Bank of Japan money market data shows that since the yen's appreciation began last Friday, there are no clear signs that Japan has conducted forex intervention, at least not on the scale seen in 2022 and 2024—when Japan cumulatively spent 24.5 trillion yen (approximately $160.19 billion) intervening in the market.
Conducting yen-buying forex intervention would mean deploying Japan's $1.37 trillion foreign exchange reserves, a large portion of which is held in US Treasury bonds. With US bond yields experiencing significant volatility, such a move could impose unnecessary pressure on the US bond market.
However, this strategy has its limitations. Whether the yen can achieve sustained appreciation ultimately depends on fundamental factors, particularly the policy direction of the Bank of Japan and the fiscal trajectory of the new government following the February general election.
The Bank of Japan's interest rate hike to a 30-year high of 0.75% in December last year failed to curb the yen's decline. Although the central bank raised its inflation forecast and the Governor made hawkish remarks in January, pushing Japanese government bond yields higher, the market still perceives the BOJ as lagging in its response to inflation, and the yen's decline has instead intensified.
Scott Bessent, who maintains close communication with BOJ Governor Kazuo Ueda, has repeatedly stated that Japan accelerating the pace of interest rate hikes will be key to reversing the yen's downtrend.
Minutes from the BOJ's December monetary policy meeting showed that the policy board overall leaned hawkish, but Governor Ueda remained tight-lipped about the timing and magnitude of subsequent rate hikes.
Some analysts believe that if Japanese Prime Minister Sanae Takaichi secures a decisive victory in the House of Representatives general election on February 8th, it could embolden the reflationist advisors under her and, in turn, intensify their opposition to interest rate hikes.
"Considering the central bank needs to pay attention to political developments, the possibility of it significantly accelerating the pace of rate hikes is not high. Even if it hikes twice a year as the market expects, the boost to the yen would be very limited," said Atsushi Takeuchi, a former Bank of Japan official.
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