<Japan Signals Readiness for Currency Intervention After Yen Hits 11-Month Low>

• Japan considers “bold action” as yen’s decline sparks concerns over market stability.
• Struggling with inflation, the government faces heightened pressure amid economic strain.

On December 23, 2025, Japan’s yen fell to an 11-month low against the US dollar, intensifying speculation about potential government intervention. Finance Minister Satsuki Katayama issued a strong warning to traders, signaling that swift measures could be taken if volatility persists.

The Bank of Japan, acting under the Finance Ministry’s direction, would utilize the nation’s $1.16 trillion in foreign reserves for any intervention. Historically, such moves have led to sharp currency appreciation, with the yen gaining 2 yen against the dollar within seconds and as much as 4 to 5 yen in hours. These rapid changes often disrupt markets, wiping out speculative positions and creating challenges for businesses managing foreign exchange risks.

The yen’s decline came after comments from Bank of Japan Governor Kazuo Ueda following a recent interest rate hike. Market participants, anticipating a stronger stance on future hikes, reacted to Ueda’s cautious tone by selling off the yen. This depreciation has exacerbated inflation concerns, particularly in resource-dependent Japan, where higher import costs are straining household budgets and pressure is mounting on domestic firms.

The persistent weakening of the yen has also sparked political fallout, contributing to the resignations of two prime ministers before Sanae Takaichi took office. Under her administration, the Finance Minister’s warnings of imminent intervention reflect increasing urgency. Notably, the government often keeps markets on edge by announcing actions only after expenditures have been disclosed, leveraging uncertainty as a tool against speculators.

While currency interventions can attract criticism from global markets, Japan has gained some flexibility through a September agreement with the United States, which affirmed the legitimacy of intervention under high volatility. Although President Donald Trump had previously condemned Japan’s currency practices, Katayama stated that the agreement offers room for coordination. Any interventions would still need to be communicated with Washington in advance to avoid diplomatic tensions.

While intervention might provide short-term stability for the yen, experts suggest it won’t address underlying challenges such as the interest rate gap. Without structural economic adjustments, the yen is expected to face continued downward pressure. The unfolding currency struggle highlights Japan’s broader economic challenges and its delicate balancing act amid both domestic and external pressures.