Finance Minister Katayama held online talks with U.S. Treasury Secretary Scott Bessent as the yen approached its weakest level in about 39 years, with the two sides believed to have discussed possible responses, including foreign exchange intervention.
In the foreign exchange market, the yen briefly fell to the 161.90 range against the dollar at around 11 p.m. on June 22, coming within sight of a level not seen in roughly 39 years.
According to people familiar with the matter, Katayama held an online meeting with Bessent as the currency came under renewed pressure. The two officials are believed to have discussed how to respond to the historic weakening of the yen, including the possibility of intervention in the foreign exchange market.
The Japanese government and the Bank of Japan carried out foreign exchange intervention from late April through May, spending about 11.7 trillion yen, but the yen’s downward trend has not been reversed.
The Bank of Japan raised its policy interest rate to 1% on June 23, with one of its main aims being to curb rising prices. BOJ Governor Kazuo Ueda has repeatedly said exchange-rate moves have become more likely than in the past to affect prices, and that the central bank will conduct monetary policy appropriately while keeping that point in mind.
As Ueda’s remarks suggest, the weaker yen has become a major factor behind the current rise in prices. In theory, a BOJ rate increase would normally lead to a stronger yen in the foreign exchange market. That pattern was seen in July 2024, when the BOJ made a full-scale move to raise rates and lifted the policy rate to 0.25%.
At the time, the yen strengthened in line with market theory, but the move accelerated sharply after Ueda said the BOJ would continue raising the policy rate and adjust the degree of monetary easing. Following that comment, the yen surged from the 155 range against the dollar to the 149 range, showing how a single nuance in central bank communication can move the market.
This time, however, the tone of the BOJ’s message was received differently. With Ueda hospitalized, Deputy Governor Shinichi Uchida appeared at the press conference in his place on short notice. Market participants were closely watching how Uchida spoke, what words he used and what view he expressed.
At the start of the press conference, the yen initially strengthened as the market reacted to the rate increase. But after Uchida said the underlying inflation rate was approaching 2% and that the BOJ would aim to stabilize it around that level, the currency market quickly shifted back toward yen weakness.
Market participants interpreted the comment as a sign that the BOJ remained cautious about further rate increases, with some saying it did not yet sound like a clear factor supporting the yen. The rate hike, which had been expected to help slow the yen’s decline, failed to produce a lasting effect.
The yen weakened further the following day after a statement from the U.S. Federal Reserve, as expectations grew that the Fed could raise interest rates before the end of the year. Those expectations have accelerated moves to sell the yen and buy the dollar.
The yen had already fallen to the 161.80 range late on June 19, placing a historic low in sight. Katayama sought to warn markets, saying the government would take decisive action if there were speculative movements, but the foreign exchange market showed little response.
The weakening yen and rising rates are also adding pressure to household finances through variable-rate mortgages. Housing market participants say they are receiving far more questions from borrowers about where interest rates may go in the future.
For a household borrowing 50 million yen over 35 years, monthly repayments would rise by about 6,000 yen under one estimate. The burden of higher mortgage payments is set to weigh more heavily on household budgets, raising the question of whether inflation will actually come under control in return.
