Japan's monetary authorities, including the Bank of Japan (BOJ), Finance Ministry, and Financial Services Agency, convened an emergency meeting to address the weakening yen. They expressed concern over "disorderly and speculative" currency movements and hinted at potential market intervention.
Top currency diplomat Masato Kanda stated that "no steps" would be ruled out to counter disorderly currency fluctuations. The BOJ also indicated its willingness to adjust monetary policy if currency movements impacted the economy and price trends. The dollar weakened against the yen following the meeting's announcement.
Despite the BOJ's recent shift away from negative interest rates, the yen has continued to depreciate. A weaker yen benefits exporters but increases import costs, fueling inflation and raising the cost of living. This undermines the BOJ's goal of achieving sustainable 2% inflation through wage growth and increased purchasing power.
Finance Minister Shunichi Suzuki emphasized the authorities' readiness to take "decisive steps" against yen weakness, echoing language used during Japan's last market intervention in 2022. He expressed a sense of urgency in monitoring market developments.
Bank of Japan Governor Kazuo Ueda acknowledged the central bank's close attention to currency movements, recognizing their impact on the economy and prices. National Australia Bank forex strategists noted the broader implications of the yen's decline, suggesting that China's recent yuan devaluation may be a response to protect its export competitiveness.
While the BOJ recently raised interest rates for the first time since 2007, market expectations for further hikes have diminished. This has contributed to the yen's use in carry trades, where investors borrow in low-interest currencies and invest in higher-yielding ones. Japanese investors are also seeking higher returns abroad, reducing the yen's support from repatriation flows. The yen remains the worst-performing major currency against the dollar for the current quarter, with a decline of over 7%.