TOKYO - Japanese authorities intervened in the foreign exchange market on Thursday to buy the yen and sell the U.S. dollar, a government source said, a move that came after the Japanese currency had been trading around its weakest level in more than 39 years.
The latest move has apparently been supported by the U.S. government, with Treasury Secretary Scott Bessent saying Thursday the yen "seems very undervalued." The last time Japanese authorities intervened in the currency market was between April and May.
Japanese Finance Minister Satsuki Katayama on Friday declined to comment on whether Japanese authorities had stepped in, but told reporters, "We are always acting with vigilance."
The country's top currency diplomat, Atsushi Mimura, also did not comment on a possible foray into the market but said authorities "are gaining U.S. assistance beyond psychological support."
Their remarks came after the yen soared to the upper 157 range against the dollar overnight in New York trading, hitting its strongest level since mid-May. The appreciation of nearly 5 yen in about 50 minutes led many traders to believe there was a massive currency intervention by Japanese authorities.
Speaking in an interview with Fox Business, Bessent said that market players will realize that the Japanese currency "should strengthen" and that the United States believes excessive volatility of the yen "isn't healthy."
"The currency is very cheap. The economy is doing well. The prime minister is very popular and enacting very strong policies, and I think we are going to see the fundamentals come through," he also said.
The New York Federal Reserve, acting on behalf of the U.S. Treasury, performed a dollar-yen rate check, a form of soft intervention that can precede direct foreign exchange purchases, the Financial Times reported, citing sources familiar with the matter.
Speculations for Japanese authorities' currency intervention had persisted since the yen hit 163.99 on July 23, the highest in around 39 years and eight months, with the dollar continuing to draw buying as a safer asset at a time of crisis amid the Middle East conflict.
The yen was also under selling pressure amid concerns over Japanese Prime Minister Sanae Takaichi's expansionary spending measures to spur economic growth despite the country's worsening fiscal health.
With households struggling with elevated prices, Takaichi on Thursday announced her plan to cut the consumption tax rate on food and beverages to 1 percent from the current 8 percent for two years starting next April. But funding sources to cover the expected revenue shortfall have not been secured.
The yen's overnight surge caught many market participants off guard, coming one day after the U.S. Federal Reserve stood pat on its key interest rate and before the Bank of Japan was to announce the outcome of its two-day monetary policy meeting on Friday.
Market participants said after the Fed's decision on Wednesday to maintain the current interest rate led to dollar-selling against the yen, the Japanese government may have determined that currency intervention will be "effective."
Although a weak yen is seen as a boon to Japanese exporters, given that it inflates their profits made overseas when repatriated, concern has been growing that excessive depreciation could hurt households and corporate profits by driving up import costs for fuel and other materials in the resource-poor country.
