Japan's top foreign exchange official: Intervention in the yen market two months ago was effective, and some U.S. officials also supported it.

Japan’s top foreign exchange official defended recent interventions in the yen exchange rate, stating that the actions have been effective and that the U.S. has tacitly endorsed or even supported them. With the yen hitting a 40-year low, this statement reinforced market expectations that authorities may step in again at any time.

According to Bloomberg, Japan’s Vice Minister of Finance for International Affairs Atsushi Mimura said in an interview on Wednesday that the intervention about two months ago “has clearly been meaningful given subsequent market movements.” He also revealed that the U.S. has never expressed objections, “and even made some more supportive statements.”

Mimura’s comments came as the yen traded at around 162.70 against the U.S. dollar, near its lowest level since 1986. The yen’s persistent depreciation has not only increased the cost of imported energy and food but also further eroded household purchasing power, fueling speculation that authorities may intervene again.

Officials Emphasize Intervention Effectiveness, Japan-U.S. Communication Remains Close

In the interview, Mimura clearly affirmed the effectiveness of two rounds of intervention since late April and emphasized that Japan and the U.S. maintain high-frequency communication on exchange rate issues. He said he keeps in touch with U.S. Treasury officials via phone and email, with a frequency “far beyond what most people imagine.”

This statement aligns with recent signals from Japanese and U.S. officials. According to a Bloomberg report, U.S. Treasury Secretary Bessent described the communication as “continuous and solid” after visiting Tokyo in May. Last week, Japan’s Finance Minister Katayama Satsuki held a phone call with Bessent, and both sides emphasized continued close coordination. The news briefly boosted the yen and reignited market expectations for possible yen intervention.

Mimura’s latest remarks mean that the Japanese government still views foreign exchange intervention as an important policy tool to curb abnormal exchange rate fluctuations, and believes that Japan and the U.S. remain broadly aligned on this issue.

Record Intervention Fails to Reverse Trend, Yen Falls Back to Lows

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

Official data show that in the month through May 27, Japan spent a total of 11.73 trillion yen (about $72.1 billion) to buy yen and sell dollars, the highest monthly intervention amount on record.

Initially, the yen strengthened to around 155, but gains were gradually erased. Even the Bank of Japan’s rate hike to the highest level in 30 years on June 16 failed to reverse the yen’s weakness, and the exchange rate has now fallen below pre-intervention levels.

Bloomberg Economics analyst Taro Kimura believes that falling below 162 does not necessarily mean the depreciation is nearing its end. According to his yen quantile regression model, the probability of further weakening to around 170 is not low, while the likelihood of a rebound to around 150 is relatively limited.

Behind Yen Weakness: Interest Rate Differential Expectations Dominate

Mimura attributed the yen’s persistent pressure to market expectations that the U.S.-Japan interest rate differential may widen again—investors generally expect the Fed to shift to rate hikes later this year.

Responding to this, Mimura said that based on the Fed’s latest dot plot, he does not believe it signals two to three more rate hikes, but emphasized that he cannot comment on the policy direction of other central banks.

Meanwhile, the yen’s weakness has had a relatively limited impact on the corporate sector. Data released by the Bank of Japan on Wednesday showed that the June large manufacturer confidence index rose to its highest since 2018, and large non-manufacturer confidence hit its most optimistic level since 1991—exporters directly benefit from improved competitiveness, while domestic companies are accelerating cost pass-through to consumers.

Market Focuses on 164-165 Range

Notably, Mimura did not repeat the usual phrases used by Japan’s Ministry of Finance in the past, such as “will take decisive action without hesitation” or “ready to respond to excessive volatility.” Analysts believe that the official downplaying of verbal warnings may be intended to preserve the element of surprise in future interventions and avoid creating a clear “intervention trigger point” expectation in the market.

However, with the yen continuing to weaken, the market still widely sees the 164-165 range as a key observation level for the Japanese government’s next possible intervention.

Beyond exchange rates, the Japanese government has also been using fiscal policy to alleviate imported inflation pressure. Prime Minister Satsuki Katayama introduced fuel subsidies to ease the burden on households, but her earlier proposed large-scale tax cuts temporarily pushed up Japanese government bond yields and caused ripples in the global bond market.

In response, Mimura said that so far, no overseas officials have directly expressed concerns about Japan’s fiscal policy, and cited the latest assessment by the International Monetary Fund (IMF) that Japan’s fiscal situation has recently received more positive international evaluations than before.

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