Strong Warning from Finance Ministry
On January 14, 2026, Atsushi Mimura, Japan's Vice Minister of Finance for International Affairs, expressed "extreme concern" over the rapid yen depreciation and stated that the government would "take appropriate action without excluding any options" to counter excessive currency movements. He repeated the phrase "without excluding any options" twice for emphasis, immediately raising market expectations of potential foreign exchange intervention.
On that day, the yen briefly touched 159 per dollar—its weakest level in approximately 18 months. Mimura noted that he "does not see economic fundamentals that would justify such movements," suggesting that speculative yen selling is driving the currency's decline.
What's Driving the Yen's Sharp Fall?
Snap Election Speculation and the "Takaichi Trade"
The immediate trigger for the yen's plunge came on January 9, 2026, when Yomiuri Shimbun reported that Prime Minister Sanae Takaichi was considering dissolving the lower house at the start of the ordinary Diet session scheduled for January 23. Takaichi's administration has championed "responsible proactive fiscal policy," and markets bet that a successful election would accelerate her expansionary fiscal agenda.
Market participants have dubbed this pattern of yen weakness, stock gains, and bond selling the "Takaichi Trade." Following the dissolution report, Nikkei 225 futures surged more than 1,800 points, briefly setting new all-time highs.
Japan-US Interest Rate Differential
The Japan-US interest rate differential remains a key structural factor behind yen weakness. While the Bank of Japan raised interest rates to their highest level in 30 years in December 2025, the gap with US rates remains substantial, encouraging carry trades where investors borrow in low-yielding yen to invest in higher-yielding dollar assets.
Japan's persistent trade and services deficit also creates structural selling pressure on the yen, driving depreciation beyond what interest rate differentials alone would suggest.
Understanding Currency Intervention
Currency intervention (officially called "foreign exchange smoothing operations") refers to the government and central bank buying or selling currencies in the foreign exchange market to influence exchange rates. To counter rapid yen depreciation, authorities conduct "dollar-selling, yen-buying intervention," while they do the opposite during periods of excessive yen strength.
The Minister of Finance decides whether to intervene, while the Bank of Japan executes the actual market operations. For yen-buying intervention, funds come from selling foreign currency reserves, primarily US Treasury holdings.
Verbal vs. Actual Intervention
In contrast to "actual intervention" involving real currency transactions, "verbal intervention" refers to officials making statements about exchange rates to influence market sentiment. Mimura's recent remarks fall into this category.
While verbal intervention typically has only temporary effects, it can heighten market vigilance about potential actual intervention and discourage speculative yen selling.
Japan's History of Currency Intervention
2022: First Yen-Buying Intervention in 24 Years
In September 2022, as the yen rapidly depreciated to around 145 per dollar, the Japanese government and BOJ conducted their first yen-buying intervention since 1998. The interventions continued intermittently from September to October, totaling approximately 9.1 trillion yen.
2024: Largest Intervention in History
In 2024, with the yen falling to around 160 per dollar—its weakest level in 34 years—even larger interventions were conducted. Approximately 9.7 trillion yen was spent from April to May, and another 5.5 trillion yen in July, totaling over 15 trillion yen—a record for a single year.
These interventions employed "stealth intervention" tactics, where authorities did not announce their actions before or after, keeping market participants guessing about the timing and scale of government action.
Key Characteristics and Effectiveness
Japan's intervention strategy since 2022 has featured several distinctive elements:
- Framing interventions as responses to "excessive volatility" in line with G7 agreements
- Intervening when speculative yen selling is prominent, with apparent US acquiescence
- Deploying large sums at unexpected moments
- Using stealth tactics to maximize market uncertainty
While currency intervention alone cannot reverse trends driven by fundamentals, the interventions have consistently slowed the pace of yen depreciation and reduced speculative positioning against the currency.
US Response and International Coordination
International coordination, particularly with the United States, is crucial for successful intervention. The September 2025 Japan-US Finance Ministers' Joint Statement reaffirmed that "exchange rates should be market determined" while acknowledging that "excess volatility and disorderly movements" can harm economic and financial stability—language that provides room for intervention.
However, the US Treasury continues to include Japan on its "Monitoring List" for currency practices. Under the Trump administration, which has taken a harder line against what it views as currency manipulation, Japan may face increased scrutiny of its intervention activities.
Looking Ahead
Is 160 Yen the "Line in the Sand"?
Market participants widely view 160 yen per dollar as the government's implicit defense line. Historical data shows that interventions have typically occurred when the yen approaches or breaks through this level, explaining the surge in intervention expectations as the currency reached 159.
The Role of BOJ Rate Hikes
Beyond intervention, additional Bank of Japan rate hikes represent another tool for yen support. Higher rates would narrow the interest rate differential with the US, creating yen-buying pressure. However, rate increases also risk dampening economic growth. Markets are focused on BOJ Governor Kazuo Ueda's comments following the January 23 policy meeting.
Fiscal Policy is Key
Some analysts argue that sustainable yen stability requires a shift in the government's fiscal stance. If the Takaichi administration more clearly commits to medium-term fiscal consolidation, this could support price stability, stable long-term interest rates, and sustainable economic growth.
Conclusion
Mimura's warning that Japan will "take appropriate action without excluding any options" signals that the government is deeply concerned about the yen's rapid decline and is prepared to intervene if necessary. With the experience of record-large interventions in 2024, the government's credible threat helps deter speculative attacks.
Fighting inflation has become a top political priority in Japan, and yen depreciation directly impacts consumers through higher import prices. How does your country's government respond to currency weakness? We'd love to hear about your experiences with currency intervention or central bank monetary policy in your country.
References
- https://news.yahoo.co.jp/articles/aede0afc8673abfd9eea81841659d36df857b5e4
- https://www.nli-research.co.jp/report/detail/id=80123
- https://www.mof.go.jp/policy/international_policy/reference/feio/index.html
- https://www.nomura.co.jp/wealthstyle/article/0556/
- https://www.nri.com/jp/media/column/kiuchi/20260113.html
- https://home.treasury.gov/news/press-releases/sb0245
Reactions in Japan
Finance Vice Minister Mimura's 'all options on table' statement is quite strong. Similar language preceded actual intervention last time, so we might really see action if we break 160.
More yen weakness... Imported goods keep getting more expensive and it's hard on our household budget. Vegetables, meat - everything is going up. I wish the government would do something soon.
Currency intervention is merely treating symptoms. The fundamental issues are BOJ monetary policy and government fiscal discipline. As long as the Takaichi administration continues its expansionary fiscal policy, intervention effects will be temporary.
Honestly, the weak yen has benefits for us exporters. Our overseas sales convert to more yen, and our price competitiveness improves. However, balancing that with rising raw material costs is challenging.
Maybe I should short USD/JPY since intervention might be coming... But if they wait until 160 is broken, there might still be room to rise. The timing is just too difficult 😅
My Hawaii trip next month is going to be so expensive with this weak yen... 159 yen per dollar is crazy. Overseas travel is becoming more and more of a luxury.
It's ironic that the snap election report triggered the yen's fall. It shows the market is assessing (or worrying about?) PM Takaichi's expansionary fiscal stance. The election outcome could cause further moves.
The 2024 intervention was effective. The stealth intervention that kept speculators guessing was brilliant. Whether the same tactics will work this time - the cat-and-mouse game with the market will be interesting to watch.
Currency intervention uses taxpayer money, right? If the yen just falls again after a temporary rise, what's the point? I want them to come up with fundamental solutions.
Thanks to the weak yen, foreign tourists are increasing. Our hotel is fully booked. Looking at the economy as a whole, I don't think the weak yen is all bad.
It's interesting to compare the currency intervention theory I learned in class with actual market reactions. It's surprising how much the market reacts to just verbal intervention.
Import costs for raw materials have risen so much that we have no choice but to pass them on. But price hikes risk losing customers. The weak yen is really tough on small businesses.
While Treasury Secretary Bessent has shown some understanding of Japan's intervention, we can't be complacent given the Trump administration's overall stance. International coordination is important, but there may be times when Japan needs to make independent decisions.
My pension doesn't increase but prices keep rising. I'm worried about how long this weak yen will continue. I hope the government considers measures that take elderly people's lives into account.
All eyes on the January 23 monetary policy meeting. What message will Governor Ueda send? Rate hike hints would support the yen, but dovish comments would increase pressure for intervention.
Japan's currency intervention is a fascinating case study. While the 2024 intervention had temporary effects, long-term success is unlikely without addressing the fundamental interest rate differential. Policymakers worldwide are watching how Japan balances central bank independence with political pressure.
We in the UK experienced the 1992 pound crisis. It's difficult for central banks to win against speculators like Soros. Japan's massive foreign exchange reserves are a strength, but fighting the entire market is never easy.
As a German, I want to emphasize the importance of fiscal discipline. If Japan's expansionary fiscal policy is contributing to yen weakness, fiscal consolidation should come first. Intervention is just a stopgap. The ECB faces similar challenges in defending the euro.
As a country also sensitive to exchange rate fluctuations, Korea is closely watching Japan's response. The Korean won often moves in tandem with the yen, so Japan's intervention affects Korean markets too. Coordination of currency policies among Asian countries will become increasingly important.
It's symbolic that Japan is on the US Treasury's monitoring list. With criticism of currency manipulation intensifying under the Trump administration, can Japan continue intervening without damaging its relationship with the US? Diplomatic maneuvering will be crucial.
China takes a different approach to exchange rate management. Rather than market intervention like Japan, we use more direct controls. Which is more effective is debatable, but I think policies suited to each country's economic structure are necessary.
From France, Japan's situation looks different from the Eurozone. Japan can pursue independent monetary policy without a single currency, but that also creates yen depreciation pressure. Considering the difficulty of multilateral coordination like at the ECB, there are aspects of Japan's position to envy.
The Australian dollar is also sensitive to US dollar movements. If Japan's intervention affects the dollar broadly, it will ripple through to the Aussie dollar too. Currency markets in the Pacific region are closely linked, so we always watch Japan's moves closely.
From an emerging market like Brazil, Japan's foreign exchange reserves are enviable. Even if we want to intervene, our capacity is limited. I really feel how different the exchange rate policy tools are between developed and emerging countries.
Russia's currency market is severely distorted under Western sanctions. In a way, intervention in a free market like Japan's is a luxury problem. I keenly feel the importance of having access to the international financial system.
The Indian rupee is also under depreciation pressure against the dollar, similar to the yen. There's much to learn from Japan's intervention strategy. The stealth intervention technique, in particular, seems like an effective way to confuse speculators. The RBI should take note.
The UAE uses a dollar peg, so we don't have exchange rate fluctuation concerns like Japan. However, that means losing monetary policy flexibility. Japan's choice is interesting - trading the risks of a floating exchange rate for policy freedom.
The Mexican peso is also a volatile currency. Like Japan, we sometimes try to stabilize our currency through central bank intervention. However, without foreign reserves like Japan's, we have to be more cautious.
As a country also on the US currency monitoring list, Vietnam watches Japan's developments closely. The content of Japan-US exchange rate agreements is instructive for other Asian countries. We want to learn how Japan negotiates with the United States.
The Canadian dollar also fluctuates against the US dollar. The Japanese finance official's remarks are interesting as central bank communication strategy. Being able to move markets with words alone is only possible because of past intervention track record. It shows the importance of credibility.