A sharp move in the yen followed a carefully worded warning, while officials left one powerful option conspicuously unanswered.
Japan’s top currency diplomat, Atsushi Mimura, urged markets to take Tokyo and Washington’s warnings about the yen’s decline seriously. He said he would closely monitor market participants’ reactions and did not rule out further action, though he declined to comment on possible intervention in currency trading.
As noted by Reuters
Last week, U.S. President Donald Trump expressed concern about the yen’s weakness during a meeting with Japanese Prime Minister Sanae Takaichi, Japan’s Finance Minister Satsuki Katayama said. On Friday, Katayama also discussed the situation by phone with her U.S. counterpart, Scott Bessent. She said both sides confirmed that the yen’s undervaluation was a cause for concern.
The Japanese prime minister, the finance minister and the United States have sent a very clear message. Markets should take it literally. I will watch closely to see whether markets continue to take this message literally.
– Atsushi Mimura
Mimura declined to say whether Japan might once again buy yen, either on its own or jointly with the United States, to support the currency. However, he dismissed suggestions that Tokyo’s options were limited by a lack of funds and said he had no such concern.
After his remarks, the yen strengthened sharply against the dollar, moving past 157 to around 156.75 yen per dollar.
A weak yen raises import costs
The yen’s decline has concerned Japanese authorities because it makes imports, including energy, more expensive. Fuel prices have risen amid the war in the Middle East.
In early September, the Bank of Japan raised interest rates to 1.25% – the highest level in 31 years. This followed another increase in June. However, the Japanese central bank’s moves and its pledge to keep raising rates have not stopped the yen’s decline. The market expects the gap between interest rates in Japan and the United States to narrow slowly, particularly after the U.S. Federal Reserve raised its rate and issued hawkish statements.
According to Mimura, the Bank of Japan has been steadily moving toward higher rates since last year, while the U.S. Federal Reserve began its rate-hiking cycle only in September. He noted that the gap between the two countries’ rates is gradually narrowing and said Japanese authorities take this trend into account when assessing market movements.
Japan and the United States have previously supported the yen together
On July 31, Japan and the United States carried out a rare coordinated intervention in the currency market to prevent the yen from falling to near a 40-year low and destabilizing financial markets. Mimura described the operation at the time as a result of the two countries’ currency partnership.
He explained that the partnership covers not only exchange rates but also cooperation on economic security, critical minerals and global supply chains. In Mimura’s view, close ties between Japan and the United States helped make the joint intervention in the currency market possible.
Last month, U.S. Treasury Secretary Scott Bessent urged Japan to “rest on the laurels of Abenomics’ success.” Some analysts took the remark as criticism of Prime Minister Takaichi’s plans to increase government spending. Mimura denied that Japan’s fiscal policy was considered too stimulative and said he had not heard such criticism from partners in the Group of Seven, the Group of Twenty or other countries.