Japanese government adviser: No need to wait for the 160 level, the Kishida administration will intervene in the yen more actively.

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Japanese government advisors state that the Sanae Takamichi administration will take a more proactive stance in intervening with the yen to curb inflationary pressure caused by the currency’s weakness, and the threshold for intervention may be lower than the widely expected 160-yen mark.

Takuji Aida, Chief Economist at Norinchukin Bank and member of the government advisory panel, said on a media program Sunday that the Takamichi administration “will intervene more actively in the foreign exchange market.” This statement reflects the concern of the prime minister, known for supporting reflationary policies, about inflation issues.

Aida pointed out that Japan has ample foreign reserves and the economic situation is not severe, providing sufficient conditions for intervention. In the previous week the yen dropped to a 10-month low against the U.S. dollar, breaking the 157 mark, which prompted Japanese authorities to escalate verbal intervention.

Finance Minister Katsuki Katayama said last Friday that the authorities will respond appropriately to excessive exchange rate fluctuations, and currency intervention is among the options.The market previously considered 160 yen the red line for intervention, but the government advisor’s latest remarks suggest the actual threshold may be lower.

Earlier Intervention Timing

In comments made last Thursday, Aida already warned traders that if currency movements “become drastic,” authorities could act before the yen hits the 160 mark. This judgment breaks previous prevailing market expectations. In 2024, authorities intervened multiple times by buying yen after the currency broke below 160, leading that level to be seen as the intervention floor.

As of Sunday’s Tokyo session, the yen had strengthened slightly to around 156.40. Just a few days ago, the Takamichi administration had unveiled the largest fiscal stimulus plan since the COVID pandemic.

Reflation Policy and Yen Pressure

Since Sanae Takamichi took office as prime minister in October, market expectations that she might prevent a near-term rate hike by the Bank of Japan have continued to weigh on the yen.Takamichi is known for supporting reflation policies, but comments from her advisory team indicate the government is also concerned that yen weakness may exacerbate inflationary pressure.

The Bank of Japan will hold its next policy meeting on December 19. After meeting with Takamichi last week, Governor Kazuo Ueda said he explained to her that the central bank is gradually withdrawing the easing policies introduced by his predecessor, which Takamichi understood.

Priority Fiscal Expenditure Fields

Aida also stated Sunday that even if bonds need to be issued, Japan should prioritize investments in artificial intelligence, naval frigates, and defense. He indicated the new government will seek to balance stable economic growth with keeping inflation in check.

Aida emphasized that Japan’s ample foreign reserves support intervention, providing authorities with sufficient policy space to deal with exchange rate volatility.

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