Japan shifts to ambush strategy to defend the yen

The yen fell to 162.58 per dollar on June 30, its weakest level since 1986, sharpening pressure on Tokyo to act. Japanese officials have shifted to a surprise-first approach to defending the currency, dropping the long habit of warning markets before any intervention.

Instead of signaling a clear exchange-rate level that would trigger action, officials are avoiding a public line in the sand. Finance Minister Satsuki Katayama said Japan was ready to take appropriate action against excessive currency moves, including “decisive action,” but the new playbook depends less on speeches than on uncertainty.

That shift also fits with a firmer message from the Bank of Japan. Deputy Governor Ryozo Himino said on June 19 that the central bank would continue raising rates with an eye on inflation overshooting target, while board member Naoki Tamura said on June 25 that the BOJ should raise rates once every few months and could speed up hikes if needed.

The domestic cost of the weak yen has also become harder to ignore. Japan’s trade balance swung to a 378.6 billion yen deficit in May, with data released on June 17 showing how the currency’s slide inflated import values. Higher import prices have fed household cost-of-living pressure and complicated the policy mix for Tokyo, where a weaker yen can lift export earnings but also deepen inflationary strain.

The Ministry of Finance disclosed 9.7885 trillion yen of intervention for the period from April 26 to May 29, 2024, including 5.9185 trillion yen on April 29 and 3.87 trillion yen on May 1. On April 29, the dollar fell from as high as 160.245 yen to 155.01 yen after suspected intervention jolted the market. Japan last intervened in October 2022, when the dollar-yen rate neared 152.