Yen rises as Japan ramps up intervention warning, signalling chance of near-term rate hike

TOKYO - Japan on Nov 21 escalated its warning of currency intervention and the central bank governor signalled the chance of a near-term interest rate hike, as the authorities sought to combat unwelcome yen falls blamed for pushing up the cost of living.

The yen is down around 6 per cent since Prime Minister Sanae Takaichi was elected leader of her party on market concern that her administration could issue more debt to fund a big spending package, casting doubt on Japan’s grip on finances.

The currency’s fall has also been driven by market bets that Ms Takaichi, known as an advocate of expansionary fiscal and monetary policy, could push back against a near-term rate hike.

Finance Minister Satsuki Katayama said Japan sees intervention in the foreign exchange market as a possibility in dealing with excessively volatile and speculative moves in the yen, issuing the strongest warning to date against recent falls in the currency.

Bank of Japan (BOJ) governor Kazuo Ueda also said the central bank will debate the “feasibility and timing” of a rate hike in upcoming meetings, signalling the prospect of increasing still-low borrowing costs as soon as December.

The remarks highlight growing concern among policymakers about a persistently weak yen, which gives exports a boost but hurts households’ cost of living through higher import prices.

“We are alarmed by recent one-sided, sharp moves in the currency market,” Ms Katayama told a news conference on Nov 21, when asked about recent declines in the yen.

“It is important for currency rates to move stably, reflecting fundamentals. We will take appropriate action as needed against excess volatility and disorderly market moves, including those in the long term”, based on the US-Japan agreement signed in September, she said.

In that agreement, Japan’s Finance Ministry and the US Treasury Department reaffirmed their commitment to “market-determined” exchange rates, while agreeing that interventions should be reserved for combating excess volatility.

When asked whether Japan’s response could include currency intervention, Ms Katayama said: “Yes, that’s written in the September statement, so it’s obviously so.”

The US dollar fell 0.14 per cent to 157.26 yen after Ms Katayama’s remarks, before bouncing back to around 157.50 yen in Asia on Nov 21.

The yen also rose against the Singapore dollar, gaining 0.15 per cent to trade at 120.23 per Singdollar at 2.37pm.

The yen has fallen 7.9 per cent against the Singdollar in the last six months, 2.7 per cent in the past month alone.

The remarks are an escalation from policymakers, who had been saying up until Nov 20 that they were alarmed by one-sided, rapid moves in the yen and watching market developments with “a high sense of urgency”.

Japan last intervened in the currency market in July 2024, when the yen fell to a 38-year low of around 161.96 to the US dollar. Then, before directly stepping into the market, the authorities warned of taking “decisive action”.

“Today’s comments suggest there is still some distance before direct intervention,” said Mr Akira Moroga, chief market strategist at Aozora Bank.

“Having said that, the authorities are probably preparing to act any time. There could be intervention once the dollar rises near 160 yen,” he said.

Mr Hirofumi Suzuki, chief currency strategist at SMBC, also saw 160 yen per US dollar as the line in the sand for intervention.

The weak yen was also a key trigger for BOJ action in 2024, when the central bank raised interest rates to 0.25 per cent in July in tandem with the government’s yen-buying intervention.

While initially voicing displeasure over a near-term rate hike, Ms Takaichi and her Finance Minister have recently nodded to the BOJ’s gradual rate-hike plan as the yen ground down.

Speaking in Parliament on Nov 21, Mr Ueda said the weak yen’s boost to inflation has become bigger than in the past as firms are more actively hiking prices and wages.

“We must be mindful that price rises, through such channels, could affect inflation expectations and underlying inflation,” he said, suggesting the weak yen could feature prominently in the BOJ’s next two-day policy meeting ending on Dec 19.

While the BOJ has kept rates steady since hiking them to 0.5 per cent in January, Mr Ueda has dropped strong hints of action in December or January 2026. REUTERS