Japan said it has full flexibility to respond to excessive moves in the yen, issuing its strongest warning yet about Tokyo’s readiness to intervene in foreign exchange markets to stop sharp declines in the currency. Finance Minister Satsuki Katayama stated that the recent weakness in the yen “does not reflect economic fundamentals at all,” noting that these moves can only be explained by speculation in the market.
Katayama added, at a press conference held after remarks by Bank of Japan Governor Kazuo Ueda last week, that the government will take appropriate action against excessive moves, based on the September agreement with the United States on exchange rate policy, which allows intervention when there are large deviations from economic fundamentals and heightened volatility.
Following these remarks, the yen rose to about ¥156 per dollar, but remained close to its lowest level in 11 months at ¥157.78, reached on Friday. The two countries had affirmed in a joint statement their commitment to market-determined exchange rates, with an understanding that intervention would be limited to addressing extreme volatility.
This warning comes as Japanese authorities face increasing pressure due to the weak yen, which has driven up import costs and inflation, burdening household living expenses. Japan last intervened in the foreign exchange market in July 2024, when it bought yen after it fell to its weakest level in 38 years at ¥161.96 per dollar.
Although the Bank of Japan raised interest rates to 0.75%, the highest in 30 years, this did not translate into gains for the yen, as markets interpreted Governor Ueda’s comments as signaling no rush for further monetary tightening. Analysts believe that the continued weakness of the yen reflects a mix of expansionary fiscal policy and relatively loose monetary policy, noting that correcting this weakness will require additional steps in monetary tightening.
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