Author: Yamazaki Makiko, Kihara Reka
TOKYO, Jan 29 (Reuters) – Japan’s top currency official is taking advantage of rare U.S. support to counter yen weakness, using tactical silence and calibrated communications to push the yen sharply higher without massive intervention.
At the center of this approach is Japan’s top monetary diplomat, Atsushi Mimura, whose sparse public comments have become policy signals in their own right.
Rather than frequently coloring the currency, Mimura has deliberately changed his tone, a style of communication that has recently led speculators to speculate when or whether Tokyo might step in, according to sources familiar with his thinking.
“They depreciated USD/JPY by about 7 yen while conserving their firepower,” said Shota Ryu, FX strategist at Mitsubishi UFJ Morgan Stanley Securities. “It’s a very effective approach.”
The yen has surged three times since late last week, with the sharpest move following reports of an unusual interest rate review by the New York Fed, putting investors on alert for the first joint U.S. and Japanese intervention in 15 years.
Although U.S. Treasury Secretary Scott Bessant denied that the U.S. had intervened in currency markets to support the yen, former Japanese currency officials said U.S. involvement in the rate review was a major breakthrough for Japan, given Washington’s traditionally negative view of currency intervention.
Even at the interest rate review level, Japan’s participation reinforced the two governments’ consensus on responding to the yen’s depreciation, they said.
Tokyo has remained deliberately silent on the day-to-day market swings, restating only that it is coordinating closely with U.S. authorities.
“By remaining silent, they are making the market think they must be doing something behind the scenes. Their silence is fueling speculation and exacerbating uncertainty,” said Yuji Saito, executive adviser at SBI FX Trade.
Mimura, who has spent nearly a third of his 37-year government career at Japan’s banking regulator, will become deputy finance minister for international affairs in 2024. He has previously said his actions were intentional.
“Always speaking up is one way of communicating, but not speaking can also be another way,” he told Reuters in his current role, which oversees Japan’s monetary policy and coordinates economic policy with other countries.
This approach works precisely because it does not require funds for costly monetary intervention. Money market data from the Bank of Japan showed that since the yen rose on Friday, there have been no clear signs that Japan has intervened, at least not on the scale of operations in 2022 and 2024, when Japan spent a total of 24.5 trillion yen ($160.19 billion).
A yen-buying intervention would mean using Japan’s $1.37 trillion in foreign exchange reserves, most of which are held in U.S. Treasuries, thereby increasing the risk of putting unnecessary pressure on the U.S. bond market if yields move sharply.
However, this strategy also has its limitations. The yen’s durable gains will ultimately depend on fundamentals, particularly the Bank of Japan’s policy path after February’s election and Japan’s fiscal trajectory under a new administration.
The Bank of Japan’s December decision to raise interest rates to a 30-year high of 0.75% failed to prevent the yen from sliding. While higher January inflation forecasts and hawkish comments from the governor pushed bond yields higher, the yen’s losses accelerated as they failed to change the view that the Bank of Japan is lagging behind in fighting inflation.
Bessent, who remains in close contact with Bank of Japan Governor Kazuo Ueda, has repeatedly said that Japan’s faster interest rate hikes will be the key to reversing the yen’s downward trend.
Although the minutes of the Bank of Japan’s December meeting highlighted the board’s hawkish bias, Ueda has remained mum on the timing and extent of further rate hikes.
Some analysts said Prime Minister Sanae Takaichi’s strong victory in the Feb. 8 election could embolden her reflation advisers, intensifying their opposition to rising interest rates.
“Given the need to pay attention to political developments, the Bank of Japan is unlikely to raise interest rates quickly. Even if it does raise interest rates twice a year as the market predicts, the impact on the yen will be limited,” said Jun Takeuchi, a former BOJ official.
(1 USD = 152.9400 yen)
(Reporting by Makiko Yamazaki and Raika Kihara; Editing by Sam Holmes)