Japan's True Intent Behind Restarting Intervention: Kanda Seeks to Buy Time for Middle East Easing

Before Golden Week, Japan’s Ministry of Finance restarted forex intervention in an unusually high-profile manner, knocking USD/JPY down from above 160 to around 156.5. But Nomura macro strategist Naka Matsuzawa bluntly says that intervention itself is not the main point—the “endgame” of intervention is. Is Japan’s Prime Minister Sanae Takashi genuinely correcting the excessive depreciation of the yen, or merely buying time for tensions in the Middle East to ease? If it’s the latter, the risk of “Sell Japan” trades resurging before June will significantly rise.

According to Chasewind Trading Desk, Matsuzawa pointed out in his weekly report published May 1, that unless three conditions are met simultaneously—understanding and cooperation from the US, the BOJ’s actions laying the groundwork for a June rate hike, and Takashi herself willing to cooperate to suppress the steepening of the yield curve and yen depreciation—the effects of this intervention will not last. The first two currently seem quite possible, but the most critical third condition remains highly uncertain.

Unprecedented Intervention: Not Just "Hitting the Exchange Rate"

This intervention’s operation is extremely rare. Before acting, Finance Minister Satsuki Katayama and Vice Minister (International Affairs) Atsushi Mimura released explicit intervention signals to the media; after the intervention, authorities immediately announced the action through some media, with the official notice set for May 27. Such openness both before and after real operations is seldom seen in history—the intention is clear: maximize deterrence before Golden Week and suppress speculative trading during the holidays.

But Matsuzawa thinks the choice of timing reveals a logic deeper than “targeting speculation.” This move is not just about the speed of yen depreciation, but two main dimensions: first, the dramatic steepening of the bond market—the day before intervention, Japan’s government bond yield curve bear steepened sharply, with 40-year yields jumping 12bp in a day, reminiscent of the January round of Japan asset sell-offs triggered by the food tax-cut proposal; second, the exchange rate itself—USD/JPY hitting 160.

Matsuzawa points out that this change in criteria is reasonable. Fiscal worries and “BOJ lagging the curve” anxiety are reflected simultaneously in the yen, government bonds, and even equities. The US Treasury has increasingly warned that excessive volatility in the JGB market may impact global financial markets, especially the US. In this context, focusing only on exchange rate changes no longer captures the full scale of current risks.

Importantly, Matsuzawa also questions the Ministry of Finance’s attribution of recent yen depreciation to “speculation”: prolonged blockade of the Strait of Hormuz pushing up oil prices, a hawkish US Fed strengthening the dollar—are these truly “speculative” factors causing yen weakness? Is the recent speed of yen depreciation really “excessive volatility”? These points are debatable.

The US Position: Tolerates Intervention but Wants Policy Change

The high-profile nature of this intervention itself suggests prior US awareness. Matsuzawa argues that without US Treasury understanding, such publicity would be almost impossible.

This inference is based on clues. US Treasury Secretary Scott Bessent is scheduled to visit Japan in mid-May. Bessent has long believed the BOJ lags the curve, warning this could not only cause excessive yen depreciation, but that excessive JGB volatility might negatively affect global (especially US) financial markets. The US-Japan joint rate check in January likely stemmed from this concern. If Bessent’s stance remains, the Treasury may tolerate or even welcome this intervention, while requiring Japan to provide supporting policy adjustments—pushing the BOJ to hike rates and stabilize the JGB market.

But January’s joint rate check offers a rather unsettling precedent. That operation only bought the market a three-month window. Worse, over those three months (partly due to unexpected escalation of US-Iran conflict), the Japanese government became even more expansionary on fiscal policy, and BOJ rate hikes were slower than expected. The US, which cooperated with the rate check, is unlikely to be satisfied with this approach. Matsuzawa believes it will be hard for Japan to convince the US Treasury even if it claims to maintain its current policy mix during Bessent’s visit.

Key Suspense—Will "Sanaenomics" be Revised?

In Matsuzawa’s view, what truly determines whether this intervention will be a “turning point” or just “time-buying” is not the Ministry of Finance, but how Takashi herself interprets its meaning—does she see this as correcting the pace of yen depreciation, or correcting the excessive level of depreciation? Is she aware that, given instability in the Middle East, her pro-inflation policy mix faces greater risk of policy mistake?

The path for revising “Sanaenomics” is actually quite clear. Step one: announce an end to deflation; step two: make curbing yen depreciation a policy priority; step three: declare support for BOJ raising policy rates to a neutral level; step four: shift policy focus from demand stimulus to boosting supply capacity, including delaying or pausing the food tax cut. Each step taken reduces “Sell Japan” risk.

But Matsuzawa admits Japan seems not to have taken even the first step yet.

The truly worrying scenario is if Takashi is actually using forex intervention as a tool to “buy time”—waiting for tensions in the Middle East to ease, waiting for energy trade to normalize. If so, with no solution for the Hormuz blockade and continued fading of Fed rate cut expectations (this week’s FOMC kept dovish wording, but was more hawkish than markets expected, market even started pricing in a rate hike in 2027), the risk of a renewed “Sell Japan” trade could sharply rise.

From Matsuzawa’s market outlook for the week of May 4, the tone is cautious: stocks are weak, bonds steady, USD firm, JPY steady. Key reasons: no progress in reopening Hormuz, US data likely to stay solid and suppress rate cut expectations, unless USD/JPY breaks 160 again there’ll be no extra intervention, BOJ June rate hike expectations may stall while steepening pressures keep piling up. Nomura has raised its suggested short USD/JPY entry range to 157-162 (target 145, stop loss 166), and is currently waiting for entry.

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The above content is from Chasewind Trading Desk.

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