The yen is plummeting, and expectations of government intervention in Japan are rising—here are the "Japanese slang terms" you need to learn.

Learning to interpret the carefully calibrated verbal warnings issued by Japanese policymakers before taking action is the key to accurate market judgment in the future.

On Thursday, the US dollar broke above the 157 mark against the yen. The yen hit its weakest level in ten months, sharply raising expectations of Japanese foreign exchange intervention.

Japan’s Finance Minister Kaori Katayama stated that if exchange rate fluctuations become excessive, appropriate measures will be taken. The yen then briefly strengthened. The last FX intervention occurred in July 2024, when the yen hit the 160 level.

Takuji Aida, Chief Economist at Crédit Agricole, said that if the yen’s exchange rate fluctuates sharply, Japanese authorities could intervene before the yen reaches 160. He pointed out that Japan has a large reserve of foreign exchange and the government under Prime Minister Sanae Takaichi is more likely to take such action.

Before actual FX intervention, Japanese officials usually issue a series of carefully calibrated warnings, using specific language to signal to the market how close they are to taking action. Grasping these subtle differences may be the key to judging the timing of interventions.

Experts Say No Need to Wait For 160

On Thursday, Takuji Aida said that as the yen continues to approach 160 per US dollar, Japan may be closer to intervening in the FX market than many investors expect.

Many market participants currently believe that 160 will be the trigger for a new round of intervention, but Aida emphasized that authorities could intervene early in the event of sharp volatility.

Aida and several other reflationists have been appointed as members of the Japanese government’s Growth Strategy Committee, further reinforcing expectations that Takaichi will boost fiscal spending and slow the pace of Bank of Japan rate hikes.

Aida believes the Bank of Japan will raise rates in January, stating:

If rate hikes happen in December, it will be seen as a lack of cooperation between the central bank and the government.

Although Takaichi is expected to announce Japan’s largest additional spending plan since the pandemic on Friday, Aida believes the Prime Minister’s goal is to launch another economic stimulus plan in spring or early summer next year. He said:

Maintaining the economy and actively supporting business investment are pillars of Sanae Takaichi’s expansionary fiscal policy.

A Complete Guide to “FX Code Words” Used by Japanese Officials

Before resorting to direct intervention, Japanese officials usually issue a series of carefully calibrated warnings, using specific terminology to signal to the market the proximity of action.

Since taking office in October, Finance Minister Kaori Katayama has largely followed the FX statement style of her predecessor. Junya Mimura, Japan’s top currency official at the Ministry of Finance, has continued the statement style of Masato Kanda, who during the three years up to July 2024 used $173 billion to support the yen.

A key signal is when officials’ statements shift from describing the currency market to discussing taking action. Although currency officials previously threatened to take “bold” or “decisive” action before interventions, since September 2022 this wording has rarely been used as a warning.

Below is a summary of the grading of warning language based on recent statements from Japanese officials, usually appearing in order of increasing risk:

Initial Phase: Reiterating G20 Common Principles. Before issuing any substantive warning, officials typically reiterate market-based principles and G20 consensus, indicating they are not targeting a specific exchange rate. For example:

“It is desirable that exchange rates reflect economic fundamentals.”“Sudden and rapid changes in exchange rates are undesirable.”“Excessive exchange rate volatility harms the economy.”“Exchange rate levels should be determined by the market.”

When Volatility Increases: Expressing Concern. As market volatility starts to draw attention, officials’ wording shifts to “monitoring” and “watching.” For example:

“We will continue to monitor the impact of the FX market on the economy.”“We are closely watching developments in the FX market.”

When Worry Escalates: Words Become Uneasy. If a one-sided market trend persists, officials’ unease will be conveyed through stronger wording. Specifically:

“The negative impact of yen weakness is becoming more pronounced.”“We have recently seen one-sided and rapid FX volatility.”“We are deeply concerned about exchange rate trends.”“We are paying close attention to FX moves with a high sense of urgency.”

Issuing a Clear Warning: Pointing Directly to Speculation and Departure from Fundamentals. When officials judge that the market has departed from fundamentals, their warnings get more pointed. For instance:

“Exchange rates do not reflect economic fundamentals.”“We are seeing rapid FX movements driven by speculation.”“The yen is weakening rapidly.”

Intervention Likelihood Surges: Hinting at Taking Action. This is the most crucial stage, where wording directly points to “action” itself, indicating that intervention is a real option. Specific statements include:

“If needed, we will take appropriate action.”“We cannot tolerate speculative moves.”“We do not rule out any means to deal with excessive volatility.”“We are ready to take action at any time.”“It can be considered that we are in standby mode.”

Final Warning (Rarely Used Recently): Ready to Take Decisive Action. Although this set of statements is rarely used as a warning signal in recent times, it remains the strongest historic warning:

“We are prepared to take decisive/bold action.”

Risk Warning and DisclaimerThe market carries risk; investments should be made with caution. This article does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article fit their specific circumstances. If you invest based on this, you are responsible for the consequences.