Former Japanese Finance Official Warns of Possible Joint Yen Intervention
Bastillepost · 2 SOURCESabout 2 hours ago3 MIN
Summary
Former Japanese Finance Ministry official Mitsuhiro Furukawa has signaled that Japan could launch another joint intervention with the United States to prop up the yen at any moment, while predicting the Bank of Japan will accelerate its rate-hike trajectory. Goldman Sachs analysts say yen carry trade positions still have significant room to unwind despite Tokyo's largest currency intervention in 15 years. The yen has already retraced about half of the gains achieved during the August intervention, underscoring the persistent difficulty authorities face in halting the currency's depreciation.
Key Points
- Former Finance Ministry official Mitsuhiro Furukawa, now chairman at Sumitomo Mitsui Banking Corporation's International Financial Research Institute, told Reuters that Japan and the US could cooperate again if the yen falls back to levels seen before the August 4 intervention
- Furukawa said intervention would not necessarily wait for the yen to reach 160-162 per dollar, but could occur at any time, noting current yen levels are clearly too weak, raising import costs and damaging the economy
- He expects the Bank of Japan to not only raise rates in September as markets anticipate, but also adopt a more hawkish stance, signaling acceleration toward a 1.5-1.75% target rate, with potential hikes in December, January, or during the April fiscal year
- Goldman Sachs noted Japan's recent intervention was the largest in 15 years and triggered substantial carry trade unwinding, exceeding the scale of July 2024 interventions, though yen has already given back about half of its pre-intervention gains
- Japan holds approximately $1 trillion in reserves, including $200 billion in cash or equivalents, providing sufficient ammunition for future market interventions
- On August 4, Japan and the US conducted joint intervention after the yen plunged to 164 per dollar in late July, temporarily boosting the currency to around 155 before it retreated toward 160 within two weeks
- Japan's intervention strategy involved selling US Treasury bonds and purchasing yen, creating significant pressure on American debt markets and prompting Treasury Secretary Bessent to urge Japan to raise interest rates instead
Why It Matters
For Hong Kong investors with exposure to Japanese markets or yen-denominated assets, the prospect of continued BOJ rate hikes and potential further interventions signals heightened volatility ahead. The widening interest rate differential between Japan and other developed economies continues to fuel carry trade dynamics, meaning any sudden shift in monetary policy or intervention could trigger rapid currency movements affecting portfolio values across the region .
For Hong Kong investors with exposure to Japanese markets or yen-denominated assets, the prospect of continued BOJ rate hikes and potential further interventions signals heightened volatility ahead. The widening interest rate differential between Japan and other developed economies continues to fuel carry trade dynamics, meaning any sudden shift in monetary policy or intervention could trigger rapid currency movements affecting portfolio values across the region .