Japan’s Katayama Says to Take Bold FX Steps Decisively as Needed

Satsuki Katayama Photographer: Kiyoshi Ota/Bloomberg Photo by Kiyoshi Ota /Bloomberg

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(Bloomberg) — Japanese authorities will take bold steps to counter moves in the currency market decisively as needed, and a US Treasury report issued overnight underscores a shared view that excessive currency moves are undesirable, Finance Minister Satsuki Katayama said.

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“We’ll respond appropriately whenever necessary, and that means taking decisive action with determination” in the currency market, Katayama told reporters at a briefing Friday.

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Katayama noted that the US Treasury Department’s semiannual foreign-exchange report released Thursday makes reference to the points agreed upon in the joint statement issued by the Japanese and US finance ministers last September.

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“Naturally, the premise that excessive volatility is undesirable is fundamental to that agreement,” she said. “We maintain close, continuous consultation — 24 hours a day, 365 days a year — in line with that joint statement.”

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Declines in the yen over multiple years through April 2026 have “resulted in substantial yen undervaluation,” the Treasury report said. It said yen weakness has persisted despite a narrowing of US-Japan interest rate differentials, adding, “while global factors such as financial market volatility and oil prices have likely affected the yen, excess volatility in the yen is undesirable.” 

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The Treasury said “monetary policy normalization would help anchor inflation expectations and reduce excessive exchange rate volatility.”

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Japan’s currency was trading around 163.83 per dollar Friday morning in Tokyo, not far from the 40-year low of 163.99 touched overnight. It’s dropped about 0.9% so far this week, putting it on course for its worst weekly performance since May, when it resumed weakening in the aftermath of Japan’s record intervention.

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Meanwhile, the dollar has climbed as escalating tensions in the Middle East spark concerns over energy supply disruptions and fuel expectations that the Federal Reserve will raise interest rates.

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“Expectations for US rate hikes have intensified due to the deteriorating situation in the Middle East,” said Masafumi Yamamoto, chief FX strategist at Mizuho Securities. “Should crude oil prices rise further, the dollar-yen exchange rate will likely test the 165 level.”

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Yamamoto said that with the Federal Reserve and the Bank of Japan both set to decide policy in the coming week, there’s a chance that the Fed maintains a hawkish stance while the BOJ fails to signal hawkishness exceeding what’s already factored in, raising the likelihood it may be perceived as dovish.

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—With assistance from Masahiro Hidaka.

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(Updates with analyst’s comments.)

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