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Battle to Defend the Yen Escalates! Japanese Finance Minister Warns of Action at Any Time, Maintains Contact with US During Holiday

Battle to Defend the Yen Escalates! Japanese Finance Minister Warns of Action at Any Time, Maintains Contact with US During Holiday

金融界金融界2026/07/04 02:04
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By:金融界

On Friday (July 3), Japan once again issued a warning to the foreign exchange market. Japanese Finance Minister Kaori Katayama stated that Tokyo is maintaining regular contact with Washington on foreign exchange issues and, even after the yen rebounded from a 40-year low, remains prepared to support the yen if necessary.

The US non-farm payrolls report released on Thursday showed moderate performance, weakening market bets on an imminent Federal Reserve rate hike. As a result, the dollar generally depreciated, giving the yen some breathing room.

When asked about the yen's continued weakness at a regular press conference, Katayama said, "Our stance has not changed at all. We will respond appropriately whenever necessary."

To highlight the government's alertness, Katayama stated that even "when the US is on holiday," Japanese and US authorities continue to maintain close contact on foreign exchange issues.

On Thursday, the yen suddenly surged against the dollar. Traders were wary of possible intervention by Japan and were also nervous about what new methods officials might use to buy yen. However, traders said the fluctuation was too small to indicate that intervention had indeed occurred.

On Friday, the yen was trading near 161.2 to the dollar. Earlier, on Tuesday, it had fallen to 162.84, marking a 40-year low.

Yen Weakness Becomes a Challenge

The yen's prolonged weakness is becoming an increasing challenge for policymakers. Depreciation of the yen drives up the cost of imported raw materials and intensifies pressure on households and businesses. Previously, energy price increases related to the Iran war had already placed pressure on Japanese households and businesses.

This week, new evidence of pressure on Japan's business sector emerged. A report released by the think tank Teikoku Databank showed that in the first half of this year, bankruptcy cases related to yen weakness reached 45, an increase of 32.3% compared to the same period last year.

The report stated: "Yen depreciation has driven up the cost of importing materials and goods, putting particular pressure on wholesalers with limited pricing power." The report added that such bankruptcies may remain high for the foreseeable future.

When asked about the increase in bankruptcies driven by yen depreciation, Katayama stated that the government plans to fully implement relevant measures to revitalize private sector activity.

Rising Policy Tensions

However, increasing fiscal stimulus could come at a high price. Investors remain wary of Prime Minister Sanae Takaichi's spending plans, keeping the bond market unsettled.

Even strong tax revenues have not eased investor concerns. Japan's Ministry of Finance stated that in fiscal year 2025, Japan's tax revenue would reach 84.2 trillion yen, approximately $523.66 billion, exceeding government forecasts by 3.5 trillion yen and setting a record for the sixth consecutive year.

Still, on Friday, Japan's benchmark 10-year government bond yield hit a 30-year high. Investors believe Takaichi's economic blueprint will trigger large-scale additional spending and send signals resisting further rate hikes by the Bank of Japan.

This economic blueprint emphasizes that the government believes close coordination with the central bank is crucial, and it calls it "very important" that the Bank of Japan aligns policy decisions with efforts to strengthen the economy.

Katayama refuted suggestions of a policy shift, stating that the blueprint merely reiterates what "the government has always said." She added that the government remains committed to maintaining market confidence in Japan's fiscal health.

However, as the yen and Japanese government bonds come under pressure, signs of unrest are beginning to emerge within the government. A member of the government panel, viewed as a dovish economic advisor to the Prime Minister, has called for the Bank of Japan to moderately raise rates.

Economist Toshihiro Nagahama said on Thursday: "A moderate rate hike by the Bank of Japan is very important for correcting yen over-weakness and curbing unwelcome bond yield surges." Nagahama had previously been considered a supporter of loose fiscal and monetary policy.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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