Japan intervened to support the yen against the U.S. dollar on Thursday, in their latest attempt to stem a selloff worsened by a spike in oil prices linked to the Iran war.
Sources have said Japan is also considering stepping into oil futures markets to relieve pressure on the currency, with policymakers increasingly viewing speculative surges in energy prices as a key driver of its weakness against the dollar.
The Japanese currency has been under sustained strain from the Bank of Japan’s slow retreat from its ultra-easy policy and concerns over Prime Minister Sanae Takaichi’s expansive fiscal agenda.
Japan’s Intervention Playbook
Japan first intervened to support the yen in September 2022 , its first such move since 1998, and has carried out four interventions since, most recently in July 2024 after the currency hit a 38-year low of 161.96 per dollar.
While Japan traditionally sold yen to curb its strength, the current concern is weakness, driven by wide rate gaps with the U.S. and rising import costs. With the economy now heavily dependent on imports, especially energy, higher oil prices and the dollar’s safe-haven appeal have added pressure.
What Has Happened So Far?
Japan’s Finance Minister Satsuki Katayama has warned that authorities are ready to act decisively against sharp currency swings, echoing similar signals from top currency diplomat Atsushi Mimura, who called it a “final warning” to markets.
Volatility has intensified since the February election, adding to uncertainty around Japan’s fiscal outlook. Intervention typically involves the Finance Ministry directing the Bank of Japan to either sell yen (to weaken it) or use foreign reserves to buy yen (to support it).
Such moves often require tacit backing from the United States, with both sides reaffirming that interventions should target excessive volatility. Authorities have also signalled they remain ready to step in again if speculative pressure continues.
What’s The Trigger?
The decision is highly political. When public anger over the weak yen and a subsequent rise in the cost of living is high, that puts pressure on the administration to respond. This was the case when Tokyo intervened in 2022 and 2024.
But the decision would not be easy. Intervention is costly and could easily fail, given that even a large burst of yen buying would pale next to the $9.6 trillion that changes hands daily in the foreign exchange market.
There is no guarantee intervention will effectively shift the weak-yen tide, which is driven to some degree by expectations of prolonged low interest rates in Japan relative to other nations.
Still, finance ministry officials have repeatedly said their response could span “all fronts,” explicitly leaving the door open to intervention in oil futures markets as volatility bleeds into yen trading.
Japan could tap its $1.4 trillion war chest of foreign exchange reserves to build short positions in oil futures, though analysts doubt such firepower would do much to halt the yen’s slide.
(With inputs from Reuters)
