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Japan warns of intervention as yen nears 160 per dollar
Japan's government ramped up warnings to currency traders on Wednesday as the yen weakened to its lowest level against the dollar in about 18 months, edging closer to the critical 160 threshold that previously prompted Tokyo to step into markets. Finance Minister Satsuki Katayama stated authorities would counter excessive and speculative moves without ruling out any measures, language investors widely see as signaling potential direct forex intervention. She raised the issue with Prime Minister Sanae Takaichi amid the yen's accelerating slide.
The yen's slump ties into heightened political uncertainty after local media reported Takaichi considering snap elections for the lower house as early as February 8 to bolster her mandate. Investors worry such a vote could fuel expectations of larger budget spending, intensifying concerns over Japan's debt path and keeping downward pressure on the currency. Bond market signals added to the unease, with a cautious response to a five-year Japanese government bond auction reinforcing views that investors demand higher yields amid rising political risks.
Market participants watch not just the yen's level but the pace of its decline. Jeremy Stretch of CIBC Capital Markets noted that Tokyo often focuses on whether moves appear excessive rather than a single fixed line. Still, 160 serves as the market benchmark, given Japan's multiple interventions in 2024, late April into early May, and again in July, according to Reuters reports and official data. Katayama's remarks echoed those of Atsushi Mimura, a top monetary official, who reiterated no options are off the table.
Some strategists suggest Tokyo might allow a test of 160 unless the drop turns disorderly, but intervention risks rise if the yen pushes toward the lower 160s. Global factors play a role too: the dollar gained support after U.S. inflation data aligned with expectations, bolstering market bets that the Federal Reserve will hold rates steady at its next meeting.
