Japan under pressure to intervene as the yen hits an 11-month low

Japan’s yen yesterday crashed to an 11-month low against the US dollar, triggering a direct warning from Finance Minister Satsuki Katayama that Japan would “take bold action” soon.

There’s no set price number that would trigger action, and Japan’s officials won’t commit to an exact rate.

The yen’s weakness began right after the Bank of Japan lifted interest rates in December to their highest level in 30 years. That hike was expected, but what surprised traders was how cautious Governor Kazuo Ueda sounded afterward.

They had expected tougher language on future rate increases. When that didn’t happen, the yen sold off hard. Many now think the BOJ won’t raise rates again anytime soon.

Japan’s weak currency could trigger inflation and ruin Sanaenomics

This isn’t the first time the yen has fallen, but the damage is different now. For years, a cheaper yen helped exporters and attracted tourists. It made Japan a low-cost destination and boosted big companies’ earnings.

But in 2025, the downside is too big to ignore. The country imports most of its energy and raw materials, so a weaker yen means higher costs at home.

Inflation has hit household budgets, and domestic businesses are struggling. Some of them can’t pass on rising costs to customers. That pressure helped topple two prime ministers before Sanae Takaichi took office. She’s now the one stuck managing the fallout.

There’s also heat from Washington. President Donald Trump accused Japan in March of letting its currency drop to win trade advantages. He said tariffs were on the table if it continued. Trump’s criticism echoed earlier trade fights.

Though Japan is on the US Treasury Department’s monitoring list, it hasn’t been branded a currency manipulator. Still, the warning shot was loud.

How Japan intervenes and what happens next if it does

When Japan decides to intervene, the Finance Ministry makes the call, and the Bank of Japan handles the operation using a few major banks. They can either buy yen and dump dollars to push the currency up or do the opposite to push it down.

In 2024, they spent close to $100 billion to lift the yen. Each time, the rate hovered near 160 yen per dollar. That level may still be the line.

To fund these operations, Japan uses its foreign currency reserves, which totaled $1.16 trillion as of November. That pile includes US Treasury holdings, some of which were sold off in 2024 to get more cash for intervention.

Verbal threats come first. Officials test the waters by using sharper language. Katayama’s talk of “bold action” is near the top of the scale.

Japan also likes to keep the markets guessing, as it usually doesn’t admit when it’s intervened. Instead, the Finance Ministry reports spending totals at the end of each month. The idea is to make traders nervous enough to back off.

If Japan does act, the effect would be detrimental, as previous actions have pushed the yen up 2 yen within seconds, and 4 to 5 yen within hours. These swings wipe out short-term bets and hit companies trying to set prices or hedge currency exposure. The chaos can be huge.

But there’s a catch. Intervention isn’t a fix. It only buys time. Unless the actual economic problems get solved, the yen can start falling again. And there’s political risk too. When Japan acts to weaken the yen, it draws flak for helping exporters. But when it props the yen up, the argument for manipulation is weaker.

Even so, the US and Japan agreed in September that interventions are fine when markets are too volatile. That deal gave Katayama what she called a “free hand” to act if needed. Any move would still be shared with Washington in advance. If it ends up making the yen stronger, there’s a good chance the Trump administration will let it pass.

If you're reading this, you’re already ahead. Stay there with our newsletter.