Japanese financial authorities kept markets guessing about possible currency intervention on Monday, with the lack of clear signals suggesting a potential shift in communication tactics. Finance Minister Satsuki Katayama on Monday said Tokyo "will respond appropriately to currency moves at any time," repeating a phrase authorities routinely use regardless of yen levels. The Reuters Inside Track newsletter is your essential guide during the World Cup. Sign up here. That contrasted with some of Katayama's past comments, where she offered more forceful warnings, including saying the government had a "free hand" to intervene.
The hard-hit yen softened to 161.7 to the dollar, just shy of a two-year low hit last week. A move beyond 161.96 would take it to its weakest since 1986. Markets are also waiting to see if Atsushi Mimura, Japan's top currency diplomat, will also weigh in. Unlike Katayama, who holds regular press conferences, Mimura speaks less frequently. As such, markets see his comments as more deliberate policy signals. Mimura has stayed publicly silent since early May, shortly after Japan sold dollars in the market to prop up the yen for the first time in nearly two years. Hours before the move, he said the time "for decisive action" was approaching, adding it was a "final warning" for markets.
Two government sources said that his warning still stands, highlighting the possibility of sudden intervention. Analysts say the government may be deliberately tweaking its communication approach after Mimura's well-telegraphed messaging allowed speculators to unwind short yen positions in advance, blunting the impact of intervention. "Some speculative players likely managed to escape without taking any damage, so the next intervention may be carried out as much as possible as a surprise," said Shota Ryu, FX strategist at Mitsubishi UFJ Morgan Stanley Securities. With no sense of urgency in officials' comments, the market may be tempted to push the yen down, but "there is strong caution about possible intervention," he added.
Speculative net short positions on the yen crept higher to 145,818 contracts, Commodity Futures Trading Commission data showed on Friday, the highest since July 2024.
Yuji Saito, executive advisor at SBI FX Trade, said a shift in expectations toward U.S. rate hikes, along with renewed Middle East uncertainty pushing up oil prices, has made it harder for investors to cut dollar-long positions in the absence of an imminent intervention threat. "That could ultimately increase the impact of any intervention, as authorities would be acting while positions remain stretched," he said. Last week the yen weakened as far as 161.8, its lowest since July 2024, wiping out the gains made after the round of interventions from April 30. Tokyo spent a record 11.7 trillion yen ($72.44 billion) intervening in foreign exchange markets between late April and early May. A persistently weak yen is lifting import costs and stoking price pressures, while the Middle East-driven energy shock has pushed fuel prices higher, prompting the central bank to warn it risks falling behind the curve on inflation.
Bank of Japan Deputy Governor Ryozo Himino told parliament on Monday that inflation could overshoot the bank's 2% target, again flagging the cost of being too late in raising interest rates.
