Japan stepped into the foreign exchange market on Thursday to buy yen, adding to a sequence of interventions that began in 2022 and aimed to halt a steep slide in the currency. The move followed a recent jump in oil prices tied to the Iran war and a stronger dollar that together pushed import costs higher. Finance Minister Satsuki Katayama said the government stands ready to act decisively and is in close contact with U.S. Authorities. Officials are also weighing action in oil futures and using rate checks, tools that have rattled markets in the past.

What happened and why

Japan intervened on Thursday to support the yen against the U.S. Dollar, sources familiar with the matter said. The step came after oil prices rose sharply amid the Iran war, which deepened the dollar's safe-haven appeal and pushed up the cost of imports for Japan. Officials signalled intervention after a period of high volatility in dollar-yen trading.

Intervention isn't new in recent years. Tokyo first bought yen in September 2022, the first such action since 1998. Since that 2022 operation, authorities have carried out four yen-buying operations aimed at curbing sudden depreciation. The last intervention before Thursday came in July 2024, when the yen hit a 38-year low of 161.96 per dollar and the government purchased yen to arrest the fall.

Those past operations framed how officials moved this time. The Ministry of Finance and the Bank of Japan deploy several graduated tools. They begin with public warnings. Officials step up verbal messages when they judge speculative moves are pushing the currency away from fundamentals. If warnings fail, rate checks and direct market purchases follow.

How intervention works

Verbal signals are the first line. Officials will say they're ready to act and warn against excessive moves. Those statements are aimed at speculative positions.

Traders often react quickly to clear language from Tokyo.

The next step is rate checking. Bank of Japan officials call market dealers and ask for current buy and sell rates for the yen. Dealers then report back. That process gives authorities a picture of liquidity and whether dealers can supply yen. In January of this year, U.S. Authorities also carried out rate checks. That unusual step helped trigger a rally in the yen at the time.

If verbal pressure and rate checks don't calm markets, authorities can buy yen directly through dealers. The purchases are executed in foreign exchange markets. They supply demand for yen and reduce immediate downward pressure. Tokyo can also use other tools, including direct intervention in oil futures markets, to lower the import-driven pressure on the currency. Officials are discussing that option, sources said.

Mastheads

Underlying forces pushing the yen

Intervention responds to market moves. But it doesn't erase the forces behind those moves. One clear driver is the yield gap between U.S. Treasuries and Japanese government debt. The Bank of Japan has been slow to abandon ultra-easy policy. That slow retreat widened rate differentials with the United States. The gap left the yen under sustained strain as investors chased higher yields abroad.

Political and fiscal choices are also in play. Markets have reacted to Prime Minister Sanae Takaichi's fiscal agenda since her party's February snap election victory. Her pledge of more expansive fiscal policy injected fresh uncertainty into Japan's fiscal outlook. That uncertainty adds to pressure on the currency.

Import dependence makes the currency move more painful for the real economy. Japanese firms have shifted much production overseas over past decades. The economy relies heavily on imported fuel, raw materials and intermediate goods. Japan sources roughly 95% of its oil from the Middle East. When oil prices spike, import bills jump. That adds to inflation and weakens the yen further because Japan must buy dollars to pay for those imports.

Who feels the impact

Exporters and importers experience different effects. A weaker yen tends to help exporters by making Japanese goods cheaper abroad. But many firms moved production overseas years ago. They don't gain as much as they once did from currency weakness. And companies that rely on imported fuel and parts see costs rise fast when the yen falls.

Consumers also feel the squeeze. Higher energy costs feed into household bills. That can cool consumption and dent growth. For policymakers, that mix creates a dilemma. Selling yen to prevent appreciation is no longer the default. Instead, authorities now face pressure to buy yen to limit import-driven inflation and protect purchasing power at home.

Market intervention can be sharp and fast. It can narrow a move for hours or days. But intervention doesn't change the underlying rate environment. If the yield gap between the U.S. And Japan stays wide, market forces will keep pushing on the yen. And if oil prices remain elevated because of the Iran war, import costs will keep rising and add pressure to the currency.

That reality is why officials are discussing oil futures as another lever. Buying oil futures could temper the immediate impact of higher energy prices on import bills. Authorities hope such action would reduce the need for persistent currency intervention. The effectiveness of that approach depends on futures liquidity and on how markets interpret government involvement in commodity markets.

There are also reputational and coordination limits. Large-scale FX intervention draws international attention. Tokyo has told its G7 partners that it stays in close contact with Washington. Finance Minister Satsuki Katayama has stressed that the government is prepared to act decisively against excessive currency swings. But repeated intervention without a change in monetary or fiscal fundamentals risks stretching reserves and testing market conviction.

Officials have a short menu. They can deliver firmer verbal warnings. They can carry out more rate checks. The group can buy yen in spot FX markets. And they can step into oil futures to blunt the import shock. Each tool has a role. Each comes with limits.

Policy change would be the more durable fix. But that would mean altering interest-rate and fiscal trajectories. The BOJ has begun a gradual policy shift. But the retreat from ultra-easy settings has been measured. That leaves the core yield gap intact for now. And political choices around fiscal expansion add another variable.

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Finance Minister Satsuki Katayama said the government is prepared to take decisive action against excessive currency swings and remains in close contact with U.S. Authorities.

This article was created with AI assistance.