Japan warns on yen weakness as bond yields climb, markets stay wary

Japan's financial authorities are trying to defend the yen without triggering a bond-market shock that could lift borrowing costs for households, companies and the state. The currency still traded near 160 per dollar even after officials warned against disorderly moves, while 30-year and 40-year government bond yields pushed to record or multi-decade highs.

Finance Minister Satsuki Katayama said the government remained ready to take decisive steps if currency moves became excessive, but the warning did little to halt the slide. Markets have also been testing how far the Bank of Japan will go next week, after Governor Kazuo Ueda signaled that the central bank must weigh the pros and cons of a rate increase if inflation risks outweigh the downside risks to the economy.

The pressure on Tokyo is now visible in the intervention numbers. Japan's Finance Ministry later confirmed foreign-exchange intervention of ¥11.73 trillion, or about $74 billion, over the April-May period, the largest monthly total on record and well above the previous high of ¥9.79 trillion set in April-May 2024. The dollar briefly plunged against the yen on April 30 and again between May 1 and May 6, suggesting repeated intervention efforts, but the impact proved limited and temporary. It was the first such operation since July 2024.

The yen's weakness matters well beyond trading screens because it lifts import prices and pushes up the cost of living for households already dealing with inflation. Real wages rose 1.9% in April from a year earlier, but that gain followed a longer stretch in which prices outpaced pay and squeezed purchasing power. The bond market is adding a second layer of strain: rising yields can increase the government's funding burden and unsettle investors who have long treated Japan's debt market as unusually stable.

That is why the coming BOJ meeting carries broader significance. The central bank is expected to raise rates this month unless a sharp escalation in Middle East tensions disrupts markets, but a faster move could cool growth just as officials are trying to steady the currency. A slower response risks leaving inflation, the yen and market confidence under even more pressure, and investors abroad are watching for any spillover from Japan's tightening act.