A recent policy pivot and MOF yen purchases have opened room for closer US Japan coordination, but market pressure could persist.
Tokyo expects that more decisive moves by the Bank of Japan and support from the United States could give the yen an additional push and curb its further decline on world markets.
The strategy focuses on the interaction of a small but influential circle of players – the Bank of Japan, the Japanese Ministry of Finance, and the United States – with the aim of raising the cost of bets against the yen, rather than radically changing the policy direction.
A misstep in policy under Governor Kazuo Ueda last month raised questions about a unified stance between the central bank and the MOF and created a more coordinated front in efforts to stem the currency’s slide.
Two days after Ueda’s remarks, the MOF conducted its first yen-buying operation in nearly two years – a move that was followed by several actions in May, according to sources familiar with the matter.
Analysts say Tokyo could expect additional momentum during Scott Bessent’s visit to Japan next week – both through explicit confirmation and through cautious signals that the United States is allowing Tokyo’s actions.
SIGNIFICANT ALIGNMENT
This is a significant alignment at present.
– Bart Wakabayashi
According to Bart Wakabayashi, head of State Street’s Tokyo branch, this is about close coordination between Japanese officials and the United States to counter pressure on the yen market. Even the mere fact of discussing currency levels can have a significant impact on market sentiment.
Scott Bessent himself played a role in January, when he urged faster BOJ rate hikes to stem the yen’s decline and initiated informal coordination with the United States on currency policy.
During the three-day visit, meetings are expected with Japanese colleague Satsuki Katayama, Prime Minister Sanae Takaichi and probably with Bank of Japan Governor Kazuo Ueda.
«I’m confident that Japanese policymakers are approaching Washington from different angles, as openly backing intervention by Washington would carry significant weight», said one participant in the talks.
If the Bank of Japan really raised rates in June, it would pave the way for another hike by the end of the year.
– A source familiar with the Bank of Japan’s thinking
While MOF officials emphasize that BOJ actions should back a measured approach to stabilizing the currency, the latest steps in May indicate stronger coordination with Washington. Against this backdrop, the market’s expectations for the yen’s level and prospects for further interventions grow.
Critics often say that intervention only makes sense if it delays the broader market trend.
– Rong Ren Goh
Analysts note that further actions depend on the global context: greater coordination with the United States could give Tokyo room to hold the line until global conditions stabilize, but the likelihood of further pressure from imported energy costs and the trade balance grows, depressing the yen regardless of domestic steps.
As policymakers and markets closely monitor events, the likelihood grows that further BOJ and MOF decisions could lay the groundwork for greater room to maneuver in responding to global challenges and market risks.