ISTANBUL

Japanese authorities might intervene in the Japanese Yen/US dollar exchange rate due to sharp losses the country’s currency is facing against the dollar, but any potential intervention will depend on the terms of the US–Japan exchange rate agreement.

The yen’s depreciation against the US dollar is a major challenge for the Japanese economy.

The Bank of Japan (BoJ) raised its policy rate by 25 basis points to 0.75%, in line with expectations, due to rising inflationary pressures and the country’s currency’s depreciation. The BoJ’s policy rate thus marks the highest level in the past 30 years.

The bank’s rate hikes have yet to prevent the yen’s depreciation. BoJ Governor Kazuo Ueda did not give a clear signal on the pace and timing of the next rate hike, saying decisions would depend on data. The yen continued to weaken and bond yields rose following his remarks.

Analysts note that Japan’s annual inflation stood at 2.9% in November, suggesting that a policy rate of 0.75% is not sufficiently restrictive.

Japanese finance minister Satsuki Katayama said intervention could be considered to curb excessive movements in the yen.

Katayama said at a press conference that the current situation did not reflect the fundamental economic dynamics, and noted that the government will take appropriate measures.

Despite the rate hike, the dollar-yen exchange rate slipped only slightly, from 157 to 156.

Japanese authorities last intervened in the currency market in July 2024, when the exchange rate reached 161.96 per dollar, its highest level since 1986.

Yen weakens on concerns interest rate gap may persist

Sadi Kaymaz, an Asian markets analyst, told Anadolu that Japan’s monetary and fiscal policies, as well as its exchange rate outlook, have become increasingly unpredictable.

He said uncertainty remains over the pace and extent of the BoJ’s rate-hiking cycle, adding that downward pressure on the yen persists.

Kaymaz noted that the BoJ’s perceived lack of hawkishness is one of the main drivers behind the yen’s depreciation.

“Despite the slow but steady rise in Japanese interest rates, developed Western countries boast resistant rates at relatively high levels, which is another factor affecting the situation,” he said. “The Japanese yen is losing value due to the perception that the interest rate gap may not close fast.”

Kaymaz stated that investors continue to borrow local currency and invest in assets in developed or emerging markets, especially in Australia and Europe.

“Washington, having raised tariffs on Japan to 15%, does not want to see Japanese goods become even cheaper due to the exchange rate,” he said.

“At this point, we may have to take a look at the Tokyo–Washington agreement in September,” he said adding that “within the agreement, certain items mark conditions for intervention, such as excessive volatility, disorderly movements, or being detached from fundamentals. The US administration conditioned that these principles, which are generally valid within the G20 countries, need to be observed for intervention.”

He mentioned that Tokyo’s general approach appears to be towards this decision, recalling Katayama’s statements, which the market perceived as a serious signal of intervention.

“We are not yet seeing excessive volatility in the Japanese yen,” he noted, pointing out that “similarly, there appears to be no irregular movements, either.”

“I think we should not expect intervention so soon, but if volatility increases and the currency suddenly depreciates rapidly, Japanese authorities could use these justifications to intervene,” he added.