The yen is once again approaching the 160 mark, and a former Japanese foreign exchange diplomat warns that the US and Japan could "jointly" intervene at any time, while the Bank of Japan may accelerate its interest rate hike pace
Japan's former chief foreign exchange diplomat, Matsuhiro Kozu, warned that a weak yen exchange rate harms the economy, and Japan and the U.S. may once again intervene in the foreign exchange market at any time. He pointed out that intervention can only buy time, and the fundamental solution lies in the Bank of Japan accelerating interest rate hikes to reverse the yen's downward trend, predicting that the central bank may continue to raise interest rates in September and subsequent months
According to the Zhitong Finance APP, Mitsuhiro Furusawa, Japan's former chief foreign exchange diplomat, stated that Japan could conduct a joint intervention in the yen "at any time" and hinted at the possibility of raising interest rates faster than expected to stop the yen's decline. Furusawa noted that the current level of the yen is "clearly too weak," raising import costs and harming the economy. He also added that if the yen returns to the level before the joint intervention by Tokyo and Washington last month, the two countries may intervene again.
"It may not be a matter of intervening when the USD/JPY exchange rate reaches 160 or 162. Intervention could happen at any time, including coordinated actions with the United States," he said in an interview on Thursday. Furusawa maintains close ties with current policymakers in Japan and abroad.
Previously, coordinated intervention by Japan and the United States pushed the yen from a 40-year low of 163.99 against the dollar to around 155.20. Since then, the yen has fallen back to around 159.40 against the dollar. Furusawa stated that intervention can only buy time, and to reverse the yen's downward trend, more fundamental measures are needed, such as the Bank of Japan accelerating interest rate hikes.
Furusawa said, "Most market participants believe the Bank of Japan will raise interest rates in September, and I think it should raise rates." However, it is more important for the central bank to convey the possibility of accelerating the pace of rate hikes.
Since ending a decade-long massive stimulus program in 2024, the Bank of Japan has raised interest rates at a pace of about twice a year, including raising rates to a 31-year high of 1% in June.
"Based on the Bank of Japan's estimate of the neutral interest rate (the rate level that neither suppresses nor stimulates economic growth) between 1.1% and 2.5%, my guess is that the Bank of Japan wants to raise rates to around 1.5% to 1.75%," Furusawa said.
"After September, the next move may occur in December or January next year, and then, if economic growth momentum does not weaken, there may be another rate hike at some point in the next fiscal year (starting in April 2027)," he said.
Hints from U.S. Treasury Secretary Scott Bessenet and a series of hawkish statements from the Bank of Japan have locked in the possibility of a rate hike in September. Data shows that the market currently estimates a 76% chance of a rate hike in September, up from just 24% on July 30.
Furusawa emphasized that it is important for Prime Minister Fumio Kishida's government not to obstruct the Bank of Japan's rate hikes and to fulfill its commitments to fiscal sustainability. Furusawa stated, "The ideal outcome is to eliminate the excessive selling of the yen through monetary and fiscal policies while allowing growth strategies to take effect, thereby strengthening Japan's economic power. This will gradually appreciate the yen over time." After leaving the Japanese Ministry of Finance, Koizumi served as the Vice President of the International Monetary Fund until 2021. Currently, he is the Director of the Global Financial Affairs Research Institute at Sumitomo Mitsui Banking Corporation. Last year, he met Besant as a member of the APEC Business Advisory Council (ABAC)
