Japanese finance minister warns: Ready to intervene in yen exchange rate at any time

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Japan’s financial authorities have issued a strong signal once again. Finance Minister Mayumi Katayama said on Tuesday that authorities are ready to take appropriate action on exchange rates whenever necessary, following the disclosure of record-breaking foreign exchange intervention data.

Katayama said at a press conference, "The volatility in oil and other spot markets is quite intense, and market volatility remains high." She emphasized that on foreign exchange issues, "we always maintain a stance of being ready to take appropriate action at any time." She also added that Ministry of Finance officials are maintaining close communication with their counterparts at the U.S. Treasury on forex trends. The market reacted cautiously to these statements, with the yen trading near 159.66 against the dollar in early Tokyo trading on Tuesday.

Last Friday, monthly intervention data released by Japan’s Ministry of Finance showed that authorities spent 11.73 trillion yen (about $73.5 billion) buying yen from April 28 to May 27, setting a record for single-month intervention. However, most of the effects of the intervention have already been absorbed by the market, and the yen, after briefly rising to near 155 following the intervention, has steadily fallen back.

Record Intervention: Unprecedented Scale, Effectiveness in Question

According to Ministry of Finance data, this round of intervention occurred as the yen fell to 160.72 against the dollar. Bloomberg reported that a knowledgeable source said the Japanese government intervened on April 30, and speculation continued for several trading days afterward that authorities were increasing yen purchases, but no daily operation details were disclosed.

This record-breaking intervention has triggered sharply different market opinions. Supporters believe the intervention effectively curbed excessive volatility, while critics question its actual effect, saying it has failed to change market sentiment and has not proven any upper limit to unilateral intervention. In fact, the yen briefly rebounded to near 155 after the intervention, but the gains were gradually erased, and it has now fallen back to around 160.

Before using real money to enter the market, Katayama had issued several tough warnings to speculators, but frequent statements have somewhat weakened the effectiveness of verbal intervention. She first used the phrase "bold action" in mid-December last year, when the yen was around 157 against the dollar. "Having discretionary power to take bold action" is typically interpreted by the market as the authorities’ final warning before entering the market.

On Tuesday, Katayama explained, "Generally speaking, when authorities are in a highly vigilant state, there is a set of routine expressions. The current situation continues to meet the criteria for using such phrases. A rash change of wording may send the wrong signal to the market." This statement shows that authorities intend to maintain the current language framework to preserve its deterrent effect.

Funding Sources Await Clarification, Foreign Reserve Data to be Released Next Week

The Ministry of Finance plans to release detailed foreign reserves data as of the end of May next week, which will give the market clues as to how authorities financed this round of intervention. According to historical practice, since 2022, Japan has raised funds for each intervention by selling some U.S. Treasury bonds. As of the end of April this year, Japan’s foreign reserves assets totaled $1.17 trillion.

The extent of changes in next week’s reserve data will be an important reference for investors in assessing the degree of ammunition consumption and the authorities’ subsequent intervention capability.

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