Japan strengthened its warning of possible currency intervention on Friday, while the Bank of Japan signaled that a near-term interest rate hike is now a real possibility. Policymakers are moving to counter the yen’s continued weakness, which they say is worsening the cost of living by raising import prices.
The yen has dropped roughly 6% since Prime Minister Sanae Takaichi took office. Markets worry that her administration may expand government borrowing to finance a large spending plan, raising concerns about Japan’s fiscal discipline.
Traders also expect Takaichi—who has supported aggressive fiscal and monetary stimulus—to resist any quick rate hike. This has added further downward pressure on the currency.
Finance Minister Satsuki Katayama said Japan is prepared to intervene in the foreign exchange market if the yen faces excessive or speculative swings. Her comments marked the strongest warning yet against the currency’s recent declines.
Bank of Japan Governor Kazuo Ueda added that the central bank will discuss the “feasibility and timing” of a rate hike at its upcoming meetings. This suggests borrowing costs could rise as early as next month, ending years of ultra-loose policy.
These remarks highlight rising concern among officials about the yen’s persistent weakness. A soft currency helps exporters but harms households by increasing the price of imported goods and energy.
“We are alarmed by recent one-sided, sharp moves in the currency market,” Katayama told reporters. He said stable exchange rates should reflect economic fundamentals and that Japan would act if volatility becomes excessive. His comments were grounded in a U.S.–Japan agreement from September, which supports market-driven exchange rates but allows intervention during periods of disorderly trading.
When asked directly whether intervention was possible, Katayama replied, “Yes, that’s written in the September statement.” After his remarks, the yen briefly strengthened, with the dollar falling to 157.26 yen before rebounding slightly.
This marks a sharper tone from authorities, who until Thursday had only expressed heightened vigilance and concern about rapid yen moves.
Focus Shifts to BOJ’s December Meeting
Japan last intervened in the currency market in July 2024 when the yen sank to a 38-year low near 162 per dollar. Before acting, officials had issued repeated warnings similar to those heard this week.
According to Akira Moroga of Aozora Bank, Friday’s comments suggest Japan is not yet at the point of immediate intervention but is clearly preparing for the possibility. He said action could come if the dollar climbs toward 160 yen.
SMBC strategist Hirofumi Suzuki agreed, calling 160 yen the likely threshold for intervention. He added that authorities would not hesitate to step in if volatility becomes excessive.
A weak yen was also a key factor behind last year’s BOJ rate increase to 0.25%, which was paired with government currency intervention.
Although Prime Minister Takaichi initially resisted the idea of a near-term rate hike, she and her finance minister have recently shown more openness to the BOJ’s gradual tightening approach as the yen continues to fall.
Speaking in parliament, Ueda said the yen’s impact on inflation is now stronger than in the past, as more companies raise prices and wages. He warned that this could influence inflation expectations and underlying price trends. These issues are expected to feature prominently in the BOJ meeting ending December 19.
While the BOJ has held rates steady since lifting them to 0.5% in January, Ueda has hinted at possible action in December or January.
