Japan’s top foreign exchange official: Yen intervention two months ago was effective, and some US officials also support it

Japan's top foreign exchange official defended recent interventions in the yen exchange rate, claiming the actions were effective and had the tacit approval, even support, from the US. As the yen fell to its lowest level in 40 years, this statement reinforced market expectations that authorities may intervene again at any time.

According to Bloomberg, Japan's Vice Minister of Finance for International Affairs, Atsushi Mimura, said in an interview on Wednesday, the intervention about two months ago "was clearly meaningful judging from subsequent market movements." He also revealed that the US has never objected to it, and "there were even some more supportive statements."

Mimura made these comments as the yen had fallen to around 162.70 against the dollar, close to its lowest level since 1986. The continued depreciation of the yen not only increased Japan's import costs for energy and food but also further eroded residents' actual purchasing power, intensifying speculation that authorities may intervene again.

Officials emphasize intervention is effective, Japan and US maintain close communication

In the interview, Mimura clearly affirmed the effectiveness of the two rounds of intervention since the end of April, and emphasized that Japan and the US maintain frequent communication on exchange rate issues. He stated he is in touch with US Treasury officials by phone and email with a "frequency far beyond most people's imagination."

This statement echoes recent information released by Japanese and US officials. According to previous Bloomberg reports, US Treasury Secretary Janet Yellen described the communication between both sides as "continuous and robust" after her visit to Tokyo in May. Last week, Japanese Finance Minister Katayama Satsuki had a phone meeting with Yellen, with both sides stressing the importance of continued coordination. News of the meeting lifted the yen and reignited market expectations about potential currency intervention by Japan.

Mimura's latest comments mean that the Japanese government still regards foreign exchange intervention as an important policy tool to curb abnormal exchange rate fluctuations, and believes that Japan and the US maintain broadly consistent positions on this issue.

Record-breaking intervention fails to reverse the trend, yen falls back to lows

The Japanese government first intervened on April 30 when the dollar-to-yen rate approached 161, and the market widely believes that authorities conducted a second round of operations in early May.

Official data shows that in the month ending May 27, Japan spent a total of 11.73 trillion yen (about $72.1 billion) buying yen and selling dollars, setting a record for the highest monthly intervention amount.

In the initial stage of intervention, the yen briefly rose to nearby 155, but gains were gradually erased. Even the Bank of Japan’s decision on June 16 to raise policy rates to their highest level in 30 years failed to reverse yen weakness, and the rate has now slipped below pre-intervention levels.

Bloomberg Economics researcher Taro Kimura believes that breaking below 162 does not necessarily mean the depreciation is nearing an end. According to his yen quantile regression model, the probability of further weakening to near 170 is not low, while chances of a rebound to around 150 are relatively limited.

Behind the weak yen: rate differential expectations dominate

Mimura attributed the ongoing pressure on the yen to market expectations that US-Japan interest rate differentials may widen further—investors generally expect the Federal Reserve to resume rate increases later this year.

On this, Mimura said, based on the Fed's latest dot plot, he does not believe it signals two to three more rate hikes, but stressed he cannot comment on other central banks’ policy directions.

Meanwhile, the impact of yen weakness at the corporate level remains relatively limited. Data released by the Bank of Japan Wednesday showed the business confidence index for large manufacturers in June rose to the highest level since 2018, and confidence among large non-manufacturers is the most optimistic since 1991—exporters benefit directly from increased competitiveness, and domestic companies are accelerating the transfer of costs to consumers.

Market focuses on the 164–165 range

It is noteworthy that Mimura did not repeat the Ministry of Finance’s usual phrases like "will not hesitate to take decisive action" or "ready to respond to excessive volatility at any time." Analysts believe authorities are intentionally downplaying verbal warnings, possibly to preserve the element of surprise in future interventions and prevent the market from forming expectations of specific "intervention points."

However, as the yen continues to weaken, the market still generally views the 164–165 range as an important zone where the Japanese government may intervene next.

Aside from exchange rate issues, the Japanese government has recently used fiscal policy to ease pressure from imported inflation. Prime Minister Katayama Satsuki introduced fuel subsidies to reduce the burden on residents, but her earlier large-scale tax cut plan briefly pushed up Japanese government bond yields and caused disruption in global bond markets.

Regarding this, Mimura stated that so far no foreign officials have directly expressed concerns about Japan’s fiscal policy, and cited the latest IMF assessment that Japan’s fiscal situation has recently received more positive international reviews than before.

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