Yen Extends Rally as Japan Confirms Intervention

The Japanese yen strengthened toward 155 per dollar on Monday, bringing its gains to about 5% over three sessions, after the Finance Ministry confirmed it carried out coordinated yen-buying operations with the US Treasury last week following the currency's slide to 40-year lows. Japanese authorities also warned they stand ready to conduct additional coordinated interventions if needed, adding that they remain in close contact with their US counterparts. US Treasury Secretary Scott Bessent also confirmed the joint action to counter disorderly moves in the yen, while President Donald Trump previously said the US joined last week's coordinated intervention as a show of support for Japan and to help safeguard global economic stability. The yen had fallen to four-decade lows last month amid pressure from elevated energy costs, mounting fiscal concerns, and persistently wide interest rate differentials.

The Japanese yen hovered around 159.55 on Friday after surging in the previous session, with markets suspecting Tokyo intervened once again to support the currency just hours before the Bank of Japan’s policy decision. Nikkei reported that Japanese authorities entered the foreign exchange market and that US officials requested dollar-yen rate quotes. Japanese Finance Minister Satsuki Katayama has repeatedly signaled that authorities stand ready to intervene at any time, while noting that Japan remains in close communication with the US on foreign exchange issues. The yen had weakened to a 40-year low earlier this month under pressure from elevated energy costs, fiscal concerns, and wide interest rate differentials. Meanwhile, the BOJ left its policy rate unchanged at 1%, in line with expectations, keeping borrowing costs at their highest level since September 1995 following a 25-basis-point rate hike in June.

The Japanese yen surged past 160 per dollar on Thursday from the 40-year low of 164 in the prior session amid the likely intervention by the Ministry of Finance. The probable move followed the $74.2 billion in selling by the MoF on the month to May 27th. This brought relief to recent pressure from high energy prices, fiscal concerns, and wide interest rate differentials. Soaring LNG and petrol prices due to the war in Iran raised dollar bids in Japan by energy importers and pressured growth due to lower margins, pressuring the domestic currency. In the meantime, fiscal concerns were magnified by the domestic tax panel reiterating the proposal to cut food taxes to 1% from the current 8%, adding to the supply of yen through fresh debt. Lastly, the Bank of Japan is due to hold rates unchanged tomorrow following their hike in June. The BoJ is expected to still deliver hikes this year, but the expectation of hikes by the US Fed limited any narrowing in the rate differential.