Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Japan’s finance ministry has raised the prospect of repeated intervention in currency markets to defend the yen as the country prepares to shut down for its annual golden week holiday period.
The renewed warning to speculators, issued by Japan’s top currency diplomat Atsushi Mimura on Friday, followed extreme turmoil for the yen on Thursday. The currency lurched between a two-year low and a two-month high against the US dollar after a suspected intervention by the government.
Mimura would not confirm that the authorities had directly intervened to support the yen against the dollar, or whether further moves were coming.
He told reporters: “But I will tell you that Japan’s golden week holidays have just started.”
Japan’s finance minister Satsuki Katayama has also advised reporters to “keep your smartphone close” during the holidays, suggesting that intervention could occur in overseas markets while Japanese trading was closed.
Japan’s sensitivity to the weak yen has risen since the eruption of war in the Middle East. The country is heavily dependent on imported energy, food and other raw materials.
The golden week period, which begins on Saturday and runs until Wednesday, is seen as an effective time for a currency intervention as trading volumes are generally low, amplifying the impact of government purchases.
“Golden week is a very good time to intervene if that is what you are doing, because from the Japanese authorities’ point of view, the lower volumes mean the intervention achieves more and you get much more bang for your buck,” said Stefan Angrick, Japan economist at Moody’s Analytics.
Traders said that part of the background downward pressure on the yen also comes from its continued use as a funding currency, where investors borrow yen cheaply to fund investments in higher-yielding assets elsewhere, a process known as the carry trade.
One government official told the FT that an intervention had taken place on Thursday after the yen, which had averaged a rate of about ¥159 against the dollar for the past month, plunged to ¥160.7 before surging more than 2.5 per cent to ¥155.50.
The yen began to slip during Tokyo trading hours on Friday to about ¥157.20.
“They will be looking to build not just a one-off move for the yen, but an ongoing momentum higher. They clearly don’t have that yet,” said one Singapore-based trader.
While verbal intervention by Japan is a frequently used mechanism, actual intervention is rare, and, in effect, a last resort to attack speculators. The last time Japan intervened, in 2024, the yen was around the same level it reached on Thursday and Japan deployed about $100bn in a series of moves to support the yen.
Mimura indicated ahead of Thursday’s intervention that the Japanese authorities were in constant contact with US counterparts, suggesting that any intervention came with the blessing of Japan’s closest ally and would not risk damaging the relationship.
Japan has been especially sensitive to weakness in the yen since the eruption of the US-Israeli war in Iran, amid concerns that prolonged disruption to energy supplies could hit Japan’s economy hard and trigger a phase of stagflation.
Prime Minister Sanae Takaichi won a landslide general election in February on pledges to protect Japanese households from the burden of rising prices.
The Bank of Japan issued a rare warning on Thursday that inflation could “deviate considerably” from its baseline forecasts given geopolitical uncertainties.
Some economists argue that the yen is currently undervalued, and that the BoJ’s efforts to gradually raise interest rates and “normalise” monetary policy have not been reflected in the dollar-yen rate.
The spread between yields on 10-year Japanese government bonds and their US equivalents has also narrowed, without pulling the yen higher.
