Japanese Finance Minister: Will "take bold action" if necessary to prevent further yen weakness

As the yen comes under pressure, Japan's finance minister issues a strong signal of intervention, while the market closely watches whether the Bank of Japan can raise rates in June to provide more lasting support.

Japanese Finance Minister Kaori Katayama said on Tuesday after attending the G7 meeting in Paris that Japan will take “bold action” in the foreign exchange market when necessary to curb the yen's continued weakness. Her remarks pushed the yen to strengthen in the short term, rising to around 158.91 per dollar at one point.

However, market participants warn that relying solely on verbal intervention and direct market actions is unlikely to fundamentally reverse the yen's weakness.

Alberto Tamura, CEO of Morgan Stanley Japan, said that a Bank of Japan rate hike in June is key to strengthening the yen. If the central bank fails to act, it will impact the bond and forex markets, and the yen could even fall further to 170 per dollar.

Finance minister sends a strong signal; G7 endorsement provides diplomatic support

After meeting with G7 colleagues in Paris, Katayama told reporters, “We have gained the understanding of our G7 partners, and reiterated that we will take bold action when necessary.” This is the first G7 finance ministers' meeting since the Japanese government, widely believed by the market to have launched a series of interventions at the end of last month.

This G7 communique reaffirmed the long-standing position of all parties, including not targeting exchange rates, and that excessive currency fluctuations can negatively impact the economy. This wording is seen as an indirect endorsement of Japan's intervention stance.

The yen previously fell to its lowest level since April 30—the time when the Japanese government carried out its first forex intervention of 2024. After Katayama’s remarks, the yen rebounded somewhat.

Bank of Japan Governor reiterates policy stance; rate hike expectations heat up

Bank of Japan Governor Kazuo Ueda reiterated at the same press conference that they will continue to implement monetary policy to ensure stable inflation and will closely monitor upside risks to inflation. He noted, “Companies are passing on costs to consumers rather quickly.”

Ueda’s remarks came as market expectations for a BoJ rate hike in June continue to rise. Ongoing conflict in the Middle East is amplifying inflation risks, and earlier in the day data showed Japan's Q1 economic growth exceeded expectations, which Ueda said is broadly in line with the BoJ’s forecasts.

According to overnight index swap data, traders currently price the probability of a BoJ rate hike at its June 16 policy meeting at about 75%. US Treasury Secretary Besant also said on social media on Tuesday that he met with Ueda and expressed confidence in Ueda's ability to successfully guide Japan's monetary policy.

Morgan Stanley: Rate hike is the fundamental for a stronger yen

Alberto Tamura, CEO of Morgan Stanley Japan, said in a media interview that he hopes the yen will rise to around 140 per dollar, and that the BoJ's action is key to achieving this goal.

"Some investors believe the BoJ is already behind the curve, so wanting the central bank to act is the first step," Tamura said. "If global conditions stabilize, this could also become a path for the yen to strengthen."

Tamura pointed out that if the BoJ fails to raise rates in June, it will impact the bond and forex markets; the yen’s trend could polarize—either fall to 170 or rise to 140, depending on how events unfold, though he gave no timeline.

He also said Japanese authorities do not want the yen to depreciate sharply from its current level.

With both the forex and bond markets under pressure, Japanese Prime Minister Sanae Takashi made a surprise turn on Monday, stating support for drafting a supplementary budget, which pushed ultra-long government bond yields to new highs. Since Takashi has long supported easy monetary policy, the market is closely watching whether she will allow space for the BoJ to raise rates. Besant previously said the Takashi government should give the BoJ room to conduct independent monetary policy.

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