Japan's Finance Ministry Warns of Action Against Excessive Yen Weakness
Government Issues Strong Warning as Yen Hits 157 Per Dollar
On December 24, 2024, Finance Minister Katsunobu Kato expressed strong concern over the yen weakening to the 157 level against the dollar, marking its lowest point in five months. Speaking at a press conference after a cabinet meeting, Kato stated that "we are seeing one-sided and rapid movements," expressing worry over forex market dynamics including speculative activity. He emphasized the government's readiness to "respond appropriately to excessive movements," sending a clear warning to currency markets.
This statement represents a strong message that the government does not rule out any measures, including direct currency intervention. Market participants immediately heightened their vigilance regarding potential intervention. Following the remarks, the yen strengthened to 156.92 per dollar, demonstrating the market's response to the finance minister's warning.
Over ¥15 Trillion in Yen-Buying Interventions in 2024
Japan's monetary authorities have conducted four currency interventions in 2024. On July 11, they sold ¥3.1678 trillion worth of dollars, followed by ¥2.367 trillion on July 12, bringing the total annual intervention to over ¥15 trillion.
In July, the yen temporarily weakened to the upper 161 range before authorities pushed it back to the 157 level through intervention. However, downward pressure on the yen has remained persistent, with the currency sliding back to 157 by year-end.
Widening US-Japan Interest Rate Differential Drives Weakness
The primary driver of yen weakness is the expanding interest rate differential between the US and Japan. The United States has implemented significant rate hikes since 2022 to combat inflation, with the federal funds rate at 4.50-4.75% as of late 2024. Meanwhile, although the Bank of Japan ended its negative interest rate policy in March 2024, long-term rates remain in the low 1% range.
At the December FOMC meeting, the Federal Reserve indicated that the pace of rate cuts in 2025 would be more gradual than previously anticipated. This strengthened expectations that the US-Japan rate differential will persist, intensifying yen-selling pressure. Market consensus suggests that yen weakness will continue until this gap narrows.
Rising Living Costs and Widening Corporate Divide
The weak yen has complex implications for Japan's economy. Rising import prices for crude oil and food products have increased household burdens. Japan's heavy reliance on imported energy and food makes it particularly vulnerable to inflation driven by currency depreciation, putting pressure on citizens' daily lives.
Conversely, export-oriented companies have benefited from yen weakness. Industries with high export ratios, such as automotive manufacturers, have seen profits boosted by favorable exchange rates. The surge in inbound tourism has also been a positive spillover effect of the weak yen.
This dynamic has contributed to widening gaps between different sectors of the economy, with the impact of currency movements far from uniform across Japanese business.
Market Outlook and Key Points of Attention
Some market participants anticipate the yen could weaken to the 160-165 range. However, with market liquidity declining during the year-end and New Year period, any intervention during this time could trigger significant volatility, creating hesitation among those considering new yen-selling positions.
Some analysts suggest authorities may hold off on intervention until the yen reaches the 161 level, where previous interventions occurred. Meanwhile, BOJ Governor Kazuo Ueda, who refrained from additional rate hikes at the December policy meeting, stated his intention to monitor the economic policies of the incoming US administration and wage trends in 2025, keeping future monetary policy direction in focus.
The Finance Ministry has emphasized the importance of coordination with overseas financial authorities and is expected to carefully consider communication strategies, including potential currency intervention, with the inauguration of the new US administration in January in mind.
The yen's trajectory will be influenced by multiple factors: US monetary policy, normalization of Japan's monetary policy, and responses to structural challenges in the Japanese economy. Markets continue to closely monitor monetary authorities' actions and policy messages.
Reactions in Japan
Here we go again. The Finance Ministry's warnings are just talk. They won't actually intervene. The market is used to this by now.
157 yen is killing us. Gas prices and food costs just keep rising. How long will this weak yen last?
It's a tailwind for export companies. My company's profits are at record highs thanks to the weak yen. But our salaries aren't going up at all...
They spent ¥15 trillion on intervention and we're back to the same levels. Isn't this a waste of taxpayer money? This doesn't solve the fundamental problem.
This is happening because the BOJ isn't raising rates properly. They need to accelerate monetary policy normalization.
The tourism industry is thriving with inbound demand though. The weak yen has pros and cons.
They're blaming speculators, but the root cause is structural problems in the Japanese economy, like declining competitiveness.
If they intervene during the thin year-end trading, it could get crazy. People holding positions should be careful.
My overseas travel budget has increased by 1.5 times... I won't be able to go abroad for a while. This weak yen is painful.
There's talk that the yen could weaken even more once the Trump administration starts. Next year looks tough too.
I want the government to seriously tackle structural reforms instead of just verbal intervention. Like promoting innovation.
Small and medium enterprises are really struggling with rising material costs. Passing on prices isn't easy either. I'm worried about bankruptcies increasing.
The problem is Japan's wages aren't rising. Even with a weak yen and inflation, if salaries increased, life would be easier.
Glad I had foreign currency deposits. Made a bit from the weak yen. But ordinary people are losing out.
Some say they won't intervene until it hits 161 yen, but can they afford to wait that long?
Unless the US-Japan interest rate gap narrows, the yen weakness trend won't change no matter what they do. It depends on the Fed's moves.
As someone in stocks, the weak yen isn't bad. Export company stock prices are rising.
Electricity bills are rising, food costs are rising. Household finances are really tight. I hope the yen strengthens soon.
Governor Ueda is in a difficult position. If he raises rates, the economy cools. If he doesn't, the yen weakens further.
A weak yen might be okay long-term, but rapid fluctuations are problematic. Companies can't plan properly either.
The Japanese government's currency intervention is merely a temporary fix. Unless they address structural issues, the yen weakness trend won't change.
As a foreign tourist, I'm happy about the weak yen. Japan travel has become more affordable than before. But it must be tough for Japanese people.
The BOJ's monetary policy has diverged too much from other major central banks. As long as this interest rate gap persists, yen weakness pressure will continue.
¥15 trillion in intervention is enormous, but you can't fight market forces. Without fundamental changes, the effect will be limited.
Korea is facing a similar situation. Asian currencies in general are weak against the dollar. This is also a regional issue.
It's advantageous for Japanese exporters, but for a country heavily dependent on imports, yen weakness is painful. Energy costs will be particularly problematic.
Depending on the Trump administration's economic policies, the dollar could strengthen further. Japan's monetary authorities are likely facing a difficult period.
Currency market intervention is only a short-term solution. Japan needs long-term competitiveness enhancement through productivity improvements and innovation promotion.
From an emerging market perspective, developed countries' currency issues seem like a luxury problem. But Japan's situation is indeed serious.
I think Japan's declining population and sluggish economic growth are behind the long-term yen weakness. This won't be easily solved.
The relationship between oil prices and exchange rates is complex. Energy-importing countries like Japan are vulnerable to the dual pressure of yen weakness and resource prices.
For trading nations like Singapore, Japan's yen weakness affects the competitive environment. The balance of the entire Asian economy is shifting.
From a Nordic perspective, Japan's monetary policy looks unusual. But each country has its own economic circumstances, so we can't generalize.
For Filipino overseas workers, the weak yen directly affects remittance amounts. It's a serious issue for people supporting their families.
From a global investor's perspective, investing in Japanese stocks requires considering yen weakness risk. Hedging costs are also rising.
From China's perspective, Japan's yen weakness affects East Asian export competition. Regional economic adjustment is necessary.
As a small country's monetary authority, Japan's currency intervention methods are instructive. But the scale is too different.
Italy faces similar demographic issues. There's much to learn from Japan's experience. Monetary policy alone can't solve this.
From our trade relationship perspective, yen weakness favors resource exports but might affect investments from Japan.
Compared to Argentina's currency crisis, Japan's situation still looks manageable. But they shouldn't be complacent.