He also noted that Japan’s Golden Week holiday season has just begun, a period that drains domestic market liquidity and historically amplifies currency volatility in both directions.
His remarks came after the Nikkei reported that the Ministry of Finance had already moved to buy yen, most likely by selling US dollars, in an effort to arrest the currency’s decline. Finance Minister Katayama had already escalated the rhetoric, warning after the yen breached 160 that Japan is getting closer to taking a decisive step in the FX market, language that in Tokyo’s typically understated diplomatic lexicon amounts to a fairly explicit threat of action.
The pressure on the yen stems from several converging forces, none of which are straightforward to resolve. The BoJ held rates at 0.75% at its April meeting, in line with expectations, but the outcome was more nuanced than the unchanged decision suggested. Three board members dissented in favour of an immediate hike, an unusually strong signal that briefly lifted the yen before Governor Kazuo Ueda effectively neutralised it at his subsequent press conference. Ueda struck a deliberately cautious tone, stressing the need to assess how the US-Iran conflict filters through to Japan’s economy before acting, and was explicit that there is no clear timeline for the next rate increase. The BoJ’s quarterly outlook did revise inflation higher and growth lower, an acknowledgement of the terms-of-trade shock Japan is absorbing, but Ueda’s messaging left markets with little reason to bring forward their hike expectations.
That policy hesitation is colliding with an oil price shock of considerable severity. Brent crude near $120 a barrel is an acute problem for an economy that imports the vast majority of its energy and sources much of it from the Middle East. The US-Iran conflict, which increasingly resembles a prolonged siege rather than a swift resolution, is keeping prices elevated with no obvious near-term off-ramp. For Japan, higher oil prices in a weak-yen environment mean import costs rise in domestic currency terms at a compounding rate, squeezing corporate margins, household budgets and the current account simultaneously.
The result is a feedback loop that monetary policy alone cannot easily break. A BoJ reluctant to hike keeps the yen under pressure, a weak yen amplifies the oil shock, and the oil shock undermines the growth outlook that might otherwise justify faster normalisation. Intervention buys time, but unless the fundamental policy divergence between Japan and the US narrows, or oil prices retreat, the pressure on 160 is unlikely to dissipate during Golden Week.
The combination of a BoJ that cannot hike aggressively, oil at $120 and a yen near 160 is a serious terms-of-trade problem for Japan. Energy import costs are surging in yen terms at precisely the moment the central bank lacks the policy flexibility to defend the currency through conventional rate action. That dynamic is self-reinforcing: yen weakness raises import costs, which pressures the economy, which makes the BoJ more cautious, which keeps the yen weak.
The intervention question is the near-term market focus. Mimura’s non-denial, combined with the Nikkei report of Ministry of Finance buying, suggests action may already have taken place. It has. Golden Week thins liquidity considerably, which cuts both ways: intervention achieves more in thin markets, but so does speculative pressure
