Japan's Finance Minister Katayama signaled Tokyo's readiness to take decisive action in the foreign exchange market, invoking language from the US Treasury's own semi-annual currency report to reinforce the case for potential intervention as the yen trades at 40-year lows against the dollar.

Katayama noted that the Treasury's report, released earlier, cited the joint US-Japan statement describing excessive forex volatility as undesirable. By explicitly referencing that shared framework rather than issuing a standalone warning, Katayama appears to be aligning Tokyo's rhetoric with Washington's language, giving Japan's warnings a degree of joint cover while still reserving the option to intervene unilaterally.

The finance minister said Japan and the United States are in close communication around the clock, but declined to comment on any specific currency levels that might prompt action. Katayama reiterated that Japan is ready to respond appropriately to currency moves at any time as needed and, separately, that the country stands ready to take decisive action on the foreign exchange market.

The remarks follow directly from the Treasury's semi-annual currency report, which called on the Bank of Japan to continue raising interest rates and found that persistent yen weakness — down 51% against the dollar in real effective terms since the end of 2011 — has left the currency substantially undervalued. That report landed on the same day the yen touched a 40-year low against the dollar, a coincidence that has kept traders on alert for intervention ever since. The widening interest rate gap between the United States and Japan — with the BOJ's policy rate still a fraction of the Federal Reserve's — has been a persistent structural driver of that depreciation, as investors seek higher yields in dollar-denominated assets.

The readiness to take decisive action, paired with confirmation of round-the-clock communication with the US, keeps intervention risk live for anyone positioned short yen near those historic lows, even though Katayama declined to name specific levels that would trigger action. Japan has previously stepped into the market to buy yen during episodes of sharp depreciation, including interventions in 2022 and 2024, deploying tens of billions of dollars from its foreign reserves each time.

The approach may also reflect the political backdrop. Premier Sanae Takaichi's administration is seen by some investors as less committed to the BOJ's rate hike path than Washington would like, leaving currency intervention as one of the few tools Tokyo can deploy quickly if yen weakness accelerates further before the Bank of Japan's July 30–31 policy meeting. Beyond financial markets, the yen's prolonged slide has squeezed Japanese households and import-dependent businesses facing higher costs for energy and food, adding domestic pressure on the government to act even as it carefully navigates its response alongside Washington.

Source: Investinglive