Japan Puts the Yen Market on Notice With Its Strongest Warning Yet

Quick overview

Atsushi Mimura came out Wednesday with language that markets do not hear often. Japan’s top currency official said explicitly that his latest remarks were a final warning before action, a phrase that leaves very little room for interpretation. The yen moved higher almost immediately after the comments hit screens, extending gains that had already started following separate remarks from Finance Minister Katayama earlier in the session.

Mimura declined to name a specific exchange rate level as the trigger, which is standard practice. What he did say was that Japan is in close contact with its US counterpart and coordinating actively within the framework of the bilateral FX agreement reached last September. That reference to Washington is deliberate. It signals that any intervention would not be a unilateral move and that Tokyo has at least informed the Americans of its intentions.

The problem Mimura is up against is that verbal warnings work best when the fundamentals are neutral. Right now they are not. Governor Ueda made clear at Tuesday’s BOJ meeting that the bank wants more time to assess how the Middle East situation is feeding through to Japan’s economy, acknowledged that underlying inflation is still running a touch below the 2% target, and said he could not say how many months it would take before conditions were right to move on rates again.

Markets heard that and drew their own conclusion. The yen has been losing ground not because traders are ignoring Tokyo, but because the forces pushing it lower, an energy shock hitting an import-heavy economy, a central bank on hold, and other major central banks staying restrictive, have not gone away. A stern warning from Mimura can move the yen for an afternoon. What it cannot do is change any of those three things.

Whether actual intervention follows will become clear quickly. The history here is that when Japan says final warning, it usually means it.

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Sophia Cruz

Financial Writer - Asian & European Desks

Sophia is an experienced writer, reporter and newsdesk member, mostly on the financial sectors. For the past 5 years Sophia has covered a wide variety of topics such as the financial markets, economics, technology, fin-tech and trading. Sophia has been a part of the FX Leaders team since 2017 and works on producing valuable content and information for traders of all levels of experience.

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