Japanese Yen Takes Heed of Intervention Talk

File image of Satsuki Katayam. Copyright by World Economic Forum / Jakob Polacsek.

Authorities ready to intervene in FX markets to defend the yen.

The yen rallied after Japan's Finance Minister Satsuki Katayama told currency traders to expect market interventions:

"Decisive action, including all available options," was being considered by the Ministry of Finance, he said.

The MoF is expected to buy yen, in conjunction with the Bank of Japan, to raise its value following chronic selling pressure.

"The yen jumped sharply in earlier trading today following comments from Finance Minister Katayama," says Derek Halpenny, Head of Research for Global Markets EMEA at MUFG Bank Ltd.

Speaking at a regular news conference, Katayama alluded to any intervention potentially including U.S. counterparts. She said a joint statement signed with the U.S. last September "was extremely significant and included language on intervention."

The talk comes following another impulse of yen selling in the wake of fevered speculation Prime Minister Sanae Takaichi is eyeing a snap early election, judging that her popularity would bolster the fortunes of her Liberal Democratic Party and return its majority in the Diet.

Takaichi advocates a policy of government stimulus and low interest rates, which are a significant headwind to the value of the yen.

Above: GBP/JPY pulls back from the highs as the yen recovers.

The latest losses in the currency promptly triggered increased speculation that Japan would have to intervene in the markets to halt its decline, allowing the yen to stabilise through the latter part of the week.

"The Takaichi administration is starting to move to defend the JPY," says a new analysis by Citi.

However, the effectiveness of intervention will be questioned by investors owing to the fundamental headwinds facing the yen: the government will be loose on fiscal policy while the Bank of Japan will be cautious when raising interest rates.

"BoJ caution, election risks that have emerged and communication from Fed officials in the US all point to risks of intervention failure," says Halpenny.

However, Kit Juckes, FX strategist at Société Générale, explains that recent losses make positioning a great deal more attractive to potential buyers of the yen:

"The latest move has unwound the long yen position built up in the first few months of 2025."

In addition, Soc Gen analysts Reo Sakida in Tokyo and Stephen Spratt in Hong Kong say that markets could be over-egging the 'Takaichi trade':

"Even with a majority in the House, the administration is unlikely to pursue aggressive fiscal expansion immediately," they say in a note.