Japan Warns of 'Appropriate Steps' as Yen Tumbles Despite Rate Hike

Japanese officials ramped up verbal warnings on Monday against the yen's slide, signaling growing tolerance for a potential market intervention after the currency hit a one-month low against the dollar.

Japan will take "appropriate steps against excessive moves," the country's top currency diplomat, Atsushi Mimura, told reporters. The statement came after the yen weakened to 157.78 per dollar in New York on Friday, even after the Bank of Japan raised its policy rate last week to a 30-year high of around 0.75%. Mimura, the vice finance minister for international affairs, specified that authorities are concerned about "one-sided and rapid moves."

The sentiment was echoed by Chief Cabinet Secretary Minoru Kihara, who told a news conference the government would respond to forex developments, including those driven by "speculators." These remarks, following similar warnings from Finance Minister Satsuki Katayama on Friday, are seen by traders as 'jawboning'—an attempt to talk up the currency without direct intervention.

The Double-Edged Sword of a Weak Yen

While a weaker yen is a boon for Japan's exporters as it inflates their overseas profits when repatriated, it's a major headwind for households. For a nation heavily reliant on imports for energy and food, a cheap yen directly translates to a higher cost of living.

The yen's recent pressure stems from the market's reaction to the BOJ's policy meeting. While the rate hike was historic, Governor Kazuo Ueda refrained from offering clear guidance on the pace of future hikes. This dovish ambiguity disappointed investors who had priced in a more aggressive tightening cycle, widening the interest rate differential with the U.S. and making the dollar more attractive.

As of noon in Tokyo, the dollar was trading at 157.42-43 yen.