Japan Reiterates Yen Intervention Threat as Foreign Reserves Plunge to Record Low

Japan's finance minister warns of potential yen intervention as the currency nears 160 per dollar, while May's record foreign reserve decline signals possible action.

Japan Signals Readiness to Intervene in Currency Markets Amid Yen Weakness

Japan's Finance Minister Satsuki Katayama reiterated Tokyo's willingness to intervene in foreign exchange markets as the yen approached the critical 160-per-dollar level. The warning comes alongside data revealing that Japan's foreign reserves fell by the largest margin on record in May, indicating potential intervention may have already occurred during the month.

The yen's decline to 160.015 against the dollar on Wednesday marked a fresh test of a psychological threshold that has historically prompted official action. Katayama attributed the volatility to speculative flows intensified by the Middle East conflict, emphasizing Japan's alignment with the US under a September 2023 joint statement permitting intervention against excessive currency swings.

Prime Minister Takaichi acknowledged the dual impact of a weak yen on Japan's economy, stating the government prioritizes strengthening economic capacity over direct exchange rate manipulation. However, the record reserve drawdown underscores growing pressure to stabilize the currency amid rising import costs and inflationary pressures.

Market Implications: Forex traders are likely to reassess short-yen positions as intervention risks rise. The 160 level remains a key technical support zone, while the reserve data suggests Japan has already deployed significant resources to curb yen weakness. Risk sentiment may shift toward caution as geopolitical tensions and central bank divergence drive currency volatility.

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