The Japanese yen continues to face pressure against the U.S. dollar. On Monday, the yen touched a level near 161.7, just a step away from the two-year low set last week. If the exchange rate falls below 161.96, it would mark the yen's weakest level since 1986. Faced with the currency's persistent decline, Japan's Ministry of Finance has shifted from its usual aggressive style of "verbal intervention," and this unusual calm has put markets on high alert.
In a routine press conference on Monday, Japanese Finance Minister Shunichi Suzuki merely stated blandly that the government will "respond appropriately to currency movements at any time." This wording stands in stark contrast to his previous, more forceful stance, which repeatedly emphasized having the "discretion" to take action.
Meanwhile, Masato Kanda, the vice finance minister for international affairs who is seen by markets as a core signal for currency policy, has maintained public silence since early May. Kanda had issued a famous "final warning" just before the intervention at the end of April. According to informed sources, because the previous overly transparent warnings gave speculators a chance to close positions and escape in advance, diluting the effect of the intervention, Japanese authorities are now intentionally adjusting their communication strategy.
Shota Ryu, chief foreign exchange strategist at Mitsubishi UFJ Morgan Stanley Securities, noted, "The authorities may be seeking to strike at short sellers through a 'surprise attack.' Under the cover of a lack of urgency in official rhetoric, any sudden intervention would have greater destructive power."
Data released by the U.S. Commodity Futures Trading Commission (CFTC) last Friday showed that net short positions on the yen have surged to 145,818 contracts, the highest level since July 2024.
Yuji Saito, an executive advisor at SBI FX Trade, believes the current market environment is extremely sensitive. On one hand, expectations for higher U.S. interest rates remain firm; on the other hand, instability in the Middle East is pushing up oil prices, making it difficult for investors to actively reduce their long dollar positions. He analyzed, "When market positions are overstretched and expectations are paralyzed by official silence, the effect of an intervention is often magnified exponentially."
The persistent weakness of the yen is no longer just a financial issue but has evolved into severe imported inflationary pressure. With energy costs soaring, the Bank of Japan's concerns about inflation getting out of control are rising.
Bank of Japan Deputy Governor Ryozo Himino warned parliament on Monday that there is a risk of price increases significantly deviating from the 2% target. He clearly hinted that if yen depreciation continues to push up import costs, the risk that the central bank will "act too late" on its interest rate hike path cannot be ignored.
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