Japan's Finance Minister intervenes verbally in the exchange rate again, causing a sharp drop in the yen and significantly increasing the risk of intervention

According to the Zhitong Finance APP, Japan's Finance Minister Shunichi Suzuki has once again issued a verbal warning regarding exchange rate fluctuations, reiterating a strong sense of urgency. The market is increasingly wary of the potential risk of intervention by the Japanese government in the future. Suzuki stated, "I see one-sided and rapid fluctuations in the foreign exchange market. We will continue to assess the situation with a high sense of urgency." Previously, the exchange rate of the yen against the dollar fell to its lowest level since February, approaching 154.50 yen per dollar. After Suzuki's remarks, the yen exchange rate rebounded to 153.81.

Suzuki pointed out that she issued a strong warning last Friday because she observed significant fluctuations in the foreign exchange market over the past two days. As of last Thursday, the yen against the dollar had fallen by nearly 3 yen, while the Bank of Japan decided to maintain interest rates unchanged that day. Although Bank of Japan Governor Kazuo Ueda hinted at an upcoming interest rate hike during the press conference following last Thursday's decision, the market seemed unconvinced, leading to a decline in the yen exchange rate.

In addition to the market's reaction to the Bank of Japan's decisions and communications, several factors are putting pressure on the yen. Last week, Federal Reserve Chairman Jerome Powell's remarks were more hawkish than expected, and investors believe that Japan's new Prime Minister Fumio Kishida is reluctant to allow interest rates to rise too quickly.

Market participants generally believe that the risk of intervention by Japanese authorities in the exchange rate is increasing, but most still think that actual action will take time. The last time Japan intervened in the foreign exchange market was in July of last year, when the dollar-yen exchange rate was around 160.

Goldman Sachs and Bank of America’s latest research reports indicate that the immediate risk of yen exchange rate intervention in Japan is currently low, emphasizing that even if the yen exchange rate accelerates its depreciation to the closely watched level of 155 yen per dollar driven by the "Kishida trade" frenzy, the usual conditions for foreign exchange intervention "have not yet been met."

Goldman Sachs expects that before having to sell long-term securities assets, the Japanese Ministry of Finance still has about $270 billion available for intervention funds, which gives it the capacity to match the scale of exchange rate interventions based on recent instances in 2022 and 2024. Goldman Sachs stated that when the dollar-yen exchange rate reaches the depreciation range of 161-162 yen, the risk of intervention will significantly increase.

Bank of America stated that unless speculative positions or volatility show a significant increase, the dollar-yen exchange rate "may first pressure test the 158 level, and then continue to break upwards, which could trigger a meaningful policy response." The Japanese Ministry of Finance intervened at levels of approximately 157.99, 159.45, 160.17, and 161.76 yen per dollar during periods of sustained and severe depreciation in 2024