Japan Delays Yen Intervention Amid U.S. Support, Ex-BOJ Official Says

Japan is likely to refrain from immediate intervention in the foreign exchange market, according to former central bank official Atsushi Takeuchi. He noted that recent coordinated efforts with the United States have effectively halted the yen’s sharp decline, which has been a concern for Japanese authorities.

In an interview with Reuters on January 28, Takeuchi, who previously participated in Japan’s currency interventions, explained that the recent actions by the New York Federal Reserve demonstrated Washington’s commitment to working alongside Tokyo to stabilize the yen. The Fed’s suspected rate checks, a rare occurrence, signal a united front in addressing the currency’s volatility, he stated.

Takeuchi emphasized that the current objective of Japanese authorities is to prevent a one-sided slide in the yen rather than targeting specific currency levels. “What authorities wanted to stop was a one-sided, sharp slide in the yen,” he remarked, adding that the focus is now on monitoring yen movements closely.

The yen experienced a notable surge on January 23, climbing over 1 percent to reach a three-month high of 152.10 per dollar. This increase came amidst speculation of coordinated rate checks by the U.S. and Japan, which are often viewed as precursors to intervention. The currency had previously approached the psychologically significant 160 mark, a threshold that could trigger official action to support the yen.

Takeuchi remarked that the recent fluctuations in the yen’s value indicate success in Japan’s psychological strategy with the markets. “The biggest job of Japan’s top currency diplomat is to heighten and keep alive market fears of intervention,” he noted. “So far, Japan has succeeded in doing so.”

Historically, Japan has sought to prevent excessive appreciation of the yen, which can negatively impact its export-driven economy. However, since 2022, the emphasis has shifted towards mitigating excessive depreciation, which can lead to rising inflation and reduced consumer purchasing power.

As Japan’s finance authorities navigate this delicate balance, they may be cautious about intervening directly in the currency market. Takeuchi suggested that direct intervention could inadvertently accelerate the yen’s rise, potentially affecting stock prices—a consideration that could weigh heavily on Prime Minister Sanae Takaichi as she heads into an election next month.

With the U.S. and Japan collaborating on currency stabilization tactics, the focus remains on maintaining market stability while addressing the broader economic impacts of currency fluctuations. The evolving dynamics in the foreign exchange market are expected to continue influencing both domestic and international economic strategies in the coming months.