The yen has fallen to an 8-month low, is Japan going to intervene? The new finance minister warns: closely monitoring with a sense of urgency

As the exchange rate of the yen against the dollar falls to an eight-month low, Japan's verbal intervention in the foreign exchange market is escalating.

Japan's new Finance Minister, Shunichi Suzuki, issued her clearest warning since taking office on Friday, stating that Japan is closely monitoring the yen's exchange rate with "a high sense of urgency," implying that its tolerance for the currency's continued depreciation is decreasing, which has rapidly heightened market expectations for direct government intervention.

Suzuki told reporters on Friday: "We have recently seen very one-sided and rapid currency fluctuations." She emphasized that the government is closely monitoring "excessive or disorderly fluctuations driven by speculative behavior" in the foreign exchange market with a high sense of urgency.

Suzuki's remarks came after the yen's exchange rate sharply declined. On Thursday, the Bank of Japan decided to maintain its benchmark interest rate, disappointing investors who were hoping for a policy shift, causing the yen to fall to 154.17 against the dollar, a new eight-month low. Following Suzuki's warning, the yen slightly rebounded to 153.65.

New Finance Minister Takes a "Tougher" Stance

The phrases used by Suzuki, such as "a high sense of urgency," are stronger than the language used by her predecessor when the yen reached the 153 level in mid-October, indicating an increase in official concern.

However, Suzuki also stated that the Bank of Japan's decision to maintain its policy is very reasonable, which has led to different interpretations in the market.

Nomura Securities' latest research report suggests that market participants may interpret this as the Ministry of Finance's concerns about exchange rate fluctuations being "not particularly strong," as she simultaneously expressed support for the monetary policy that has led to the yen's weakness. This ambiguity makes traders more cautious when assessing intervention risks.

But the report also emphasizes that Suzuki's remarks may be "out of respect for the Bank of Japan."

Are Conditions for Intervention Maturing?

Despite the ambiguity in official statements, several indicators suggest that the conditions for foreign exchange intervention may be forming. According to Bloomberg analyst Skylar Montgomery Koning, two key factors for Japan to take more decisive action are the "speed and level" of depreciation.

Historically, Japanese authorities intervened in October 2022 when the yen depreciated about 14% to the 155 level within three months; they intervened again in May 2024 when the yen depreciated 8% and broke through 160 in less than two months. In contrast, the yen's approximately 5% decline over the past month has been sufficient to raise "concerns."

Additionally, 155 is viewed by the market as an important psychological threshold. Analysts believe that the current weakness of the yen has become a political burden, as it exacerbates imported inflation and puts pressure on the cost of living for the public. These factors together constitute the maturing conditions for intervention

Historical Reflection: The Effect of Intervention May Be Limited

However, historical experience shows that even if Japan takes actual action, its long-term effects are questionable.

Nomura Securities' report reviews the situation from 1997 to 1998, when the Japanese Ministry of Finance conducted multiple yen-buying interventions, including joint interventions with the United States. But history indicates that these interventions did not fully stop the depreciation trend of the yen.

In hindsight, it was external financial shocks such as the Russian debt crisis that ultimately led to a rise in market risk aversion, which pushed the USD/JPY exchange rate to fall sharply at the end of 1998.

The lesson from history is that intervention may work in the short term, but it is usually difficult to reverse long-term exchange rate trends driven by fundamentals (such as interest rate differentials). Unless there are significant changes in the external macro environment, relying solely on intervention may struggle to sustain support for the yen.

Looking ahead, the market's focus will be on U.S. economic data and the Japanese government's upcoming budget discussions starting on November 7, which may provide new guidance for the yen's movement