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The Japanese yen’s renewed weakness is testing the patience of policymakers in Tokyo and unnerving investors.The currency fell to 154.79 against the dollar on November 12, its lowest level in around nine months, following recent declines largely prompted by the emergence of Sanae Takaichi as Japan’s new leader. Takaichi’s focus on boosting economic growth has fuelled expectations she will be reluctant to prod the Bank of Japan to raise interest rates — a move that would support the yen.If the central bank waits longer to increase borrowing costs, the government may be forced to wade into currency markets to prop up the yen. Officials have indicated they are keeping a close eye on currency market movements, a typical first step before direct intervention.While Japan is committed to international pacts that stipulate markets should determine exchange rates, the Group of 20 has acknowledged that excessive or disorderly currency moves can threaten economic and financial stability, giving members wiggle room to intervene when volatility spikes. Japanese officials insist it is sharp or disorderly movements — not any specific exchange-rate threshold — that trigger intervention.The question now is how far — or how quickly — the yen needs to fall before Tokyo steps in to protect it.Why is the yen’s weakness cause for concern?While the yen’s slide over the past decade or so has transformed Japan into an affordable travel destination for millions of foreign tourists and boosted the profits of the nation’s biggest exporters, its weakness has become acute.For an economy heavily dependent on imported energy and raw materials, the feeble yen drives up costs, fuelling inflation for households and squeezing margins for domestically focused businesses. The resulting cost-of-living crunch has already helped bring down two prime ministers.There’s another reason why Japan’s government may want to act. President Donald Trump has repeatedly criticised Japan for its weak currency, arguing it gives Japanese manufacturers an unfair trade advantage. That’s a point that came up in trade negotiations between the two nations.What is currency intervention?When a country’s central bank steps into the foreign exchange market with the intention of strengthening or weakening its currency, that’s known as direct intervention.In Japan’s case, the Finance Ministry decides when to act and the BOJ carries out the operation via a limited number of commercial banks. Japan will either buy yen or sell dollars to strengthen the local currency or sell yen and buy dollars to weaken it. The scale of the transactions depends on how much impact the ministry seeks and how quickly the market reacts.Where does the money come from?When Japan intervenes to prop up the yen, the dollars typically come from its foreign reserves in the form of cash or US Treasury holdings. As of the end of October, Japan had $1.15tn in foreign currency. During last year’s interventions, for example, Japan appeared to sell some US Treasuries from its reserves to help finance the action.How effective is currency intervention?Intervention is a clear way for the government to tell speculators it won’t allow its currency to go into free fall or rocket up. However, it only offers a temporary fix unless economic fundamentals driving the trend are also addressed. In addition, foreign reserves are generally there to protect the economy in the event of a major financial shock or unexpected event, not to artificially prop up the currency. A unilateral move is still seen as unlikely to turn the tide of currency momentum, but it can buy time until market dynamics change.How often does Japan intervene in its currency market?Japan has exchanged vast amounts of money over the years — usually to weaken the yen. But recent intervention has been in the opposite direction. The government spent a total of almost $100bn on yen-buying to prop up the currency in 2024. On each of the four occasions the exchange rate was around 160 yen per dollar, setting that level as a rough marker for where action might take place again.To keep traders guessing, officials often don’t immediately confirm an intervention. But the ministry discloses the amount spent on intervention at the end of each month. Generating doubt and fear of losses in the market is part of the ministry’s strategy, making the comments of officials highly potent.What is verbal intervention?To keep traders on guard and slow movements in markets, senior officials can make remarks that hint at the prospect of intervention and bloody noses for market players. Comments by the finance minister or the ministry’s top currency official can quickly scare speculators. Officials typically use a carefully calibrated set of expressions to ratchet up their warnings and show how close they are to moving. References to “taking action” suggest intervention is close.What are the flow-on effects of monetary intervention?When Japan’s authorities intervene in currency markets, the immediate impact is typically sharp. Past episodes show the yen jumping around 2 yen against the dollar within seconds and 4 to 5 yen within hours.These abrupt swings can cause huge losses for traders making speculative bets that the currency will keep moving in the previous direction. Sharp moves can also cause headaches for businesses trying to price goods, make payments and hedge against exchange rate fluctuations.For the government, intervention also carries political and diplomatic risks. It can draw criticism for currency manipulation, especially when intervention is aimed at weakening the yen, a direction that can help exporters with trade. That charge is harder to argue when Tokyo acts to support the yen.What is the US stance on a weak yen?Trump accused Japan’s leaders of guiding the yen lower to gain a competitive advantage in early March and said tariffs were the solution. Japan remains on the US Treasury Department’s “monitoring list” for foreign-exchange practices after posting trade and current account surplus against US, but doesn’t fulfil all the conditions to be characterised as a currency manipulator.Tokyo and Washington issued a joint statement in September, in which the two finance chiefs reaffirmed that intervention “should be reserved for dealing with excess volatility or disorderly movements” and not for competitive advantage. Still, Treasury Secretary Scott Bessent on October 7 said Japan’s government needed to give the central bank space to manage volatility — comments seen as a warning against excessive weakness in the yen.Any intervention would take place after prior notice to the US and if it ended up strengthening the yen, it may be tacitly welcomed by the Trump administration.

Bank of Japan (BoJ) Governor Kazuo Ueda kept his policy options open by reiterating the bank’s long-held stance on interest rates, avoiding sending any clear signals about the prospects for a rate hike when the board meets later this month.“If the baseline scenario for economic activity and prices outlined so far is realised, the bank, in accordance with improvement in economic activity and prices, will continue to raise the policy interest rate,” Ueda said Friday in a speech to local business leaders in Osaka.Ueda refrained from telegraphing any policy changes after market speculation over an impending rate hike gained momentum in recent weeks. Two board members dissented from the decision to hold settings steady last month, and a member considered dovish cited the heightened need for policy change in a speech earlier this week.Instead, Ueda took a more neutral tack by highlighting the factors officials are monitoring as they mull the timing for a rate shift.“To determine whether economic activity and prices are improving, the bank will, for the time being, monitor factors such as the points I mentioned,” Ueda said, citing the global economy — especially the US economy — and the impact of US tariffs on Japan’s corporate profits as factors to watch. He added that wage and price trends including food inflation required attention.The yen weakened as much as 0.4% to 147.82 against the dollar after Ueda spoke.“Some dovish comments from Ueda have prompted selling of the yen,” said Akira Moroga, chief market strategist at Aozora Bank. “While the market had expected Ueda to sound more hawkish, the governor refrained from taking an aggressive posture toward rate hikes.”Still, the mere reiteration of the existing policy stance will likely keep alive market speculation over a rate hike when authorities next set policy on October 30, as the governor refrained from backing or opposing such notions.Pricing in the overnight swaps market shows that traders see about a 56% chance for a move at that meeting, up sharply from around 22% early last month, though down from levels seen earlier in the week.The annual Osaka conference tends to be where BoJ governors deliver one of their most important speeches of the year. Friday’s event comes days after the central bank released its latest Tankan survey — the first time since 2013 that the key speech followed the quarterly survey. The timing fuelled market speculation that the bank might wish to lay the groundwork for a hike after examining the closely watched dataset. It showed business sentiment at a solid level.“Given the corporate sentiment until now, we can say that the likelihood is rising for our economic outlook to be realised,” Ueda told reporters later Friday. “But, looking ahead, it doesn’t give us strong information over the future impact of US tariffs.”Japan’s inflation has stayed at or above the BoJ’s 2% target for more than three years. Ueda has justified a gradual approach to rate hikes by explaining that the underlying trend remains shy of the target.At the September meeting, board members Naoki Tamura and Hajime Takata called for hiking rates. It was the first time in Governor Ueda’s tenure that more than one member had dissented from a vote to hold steady.Ueda didn’t cite political uncertainty among the factors he’s monitoring, but it’s likely he’ll be closely watching when the ruling Liberal Democratic Party selects a new leader on Saturday.Sanae Takaichi, a top contender for the party race and an advocate of monetary easing, said borrowing costs shouldn’t be raised while the other four candidates said monetary policy should be left to the central bank, Kyodo News reported Thursday, citing a survey.Another emerging uncertainty comes from a US government shutdown that began Wednesday. Economic data releases from the US are expected to be delayed as a result, including the unemployment report scheduled for Friday.“It’s a severe problem,” Ueda said. “We just have to gather information by various ways and make a decision” if the absence of data lasts until the October meeting, he said.