FX Reserve Raid Threat Helps Draw Line Under Yen Weakness

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

The Japanese yen is extending its recent recovery as investors respond to signals that the new administration is serious about addressing the currency’s multi-year decline.

Japan’s new Finance Minister Satsuki Katayama has floated plans to use Japan's FX reserves to fund government policies, making it a form of stealth intervention that would shore up the value of the yen.

Japan’s FX reserve stockpile stands at approximately $1.4 trillion, one of the largest in the world, and any move to deploy part of it would carry significant market implications.

Analysts say such a step would resemble a form of stealth intervention designed to shore up the yen’s value. Prime Minister Sanae Takaichi has proposed cutting the sales tax on foodstuffs, a measure aimed at easing the burden on households facing higher import costs exacerbated by a weak currency.

Financing that move via a reduction in foreign reserves would require the sale of foreign currency assets and their conversion into yen on the open market, a process that would weigh on USD/JPY and other yen crosses.

Yen weakness had become a growing concern for the new administration after several key currency pairs reached multi-decade highs in early 2026. USD/JPY peaked at 159.45 in January, while GBP/JPY touched 215 on February 04, highlighting the scale of depreciation pressure.

Since then, the yen has rebounded, pushing those pairs lower as traders reacted to the decisive election victory of Takaichi’s Liberal Democratic Party.

The strength of that mandate has reassured investors that fiscal and currency policy will be shaped by a stable majority government rather than coalition compromise which invites destabilising populist decisions.

“The LDP leadership is sending the right signals on FX, rates and spending; and we expect that to carry over into a cautious but expansionary budget. Post election price action for FX and yields suggests investors are coming round to our view that fiscal sustainability is not a significant issue for Japan right now,” says a note from TS Lombard.

Strategists at CIBC also point to a shift in positioning dynamics.

Maximillian Lin, a strategist at CIBC, says macro funds are buying the yen as the narrative around Japan’s fiscal expansion and debt burden evolves.

“Although we think MoF raiding the war chest is unlikely, the story dampens the narrative on Takaichi trades,” says Lin.

These latest developments could well draw a line under recent JPY weakness.