BOJ Rate Hikes and Yen Intervention Loom on Horizon

Tokyo's former top currency diplomat Mitsuhiro Furusawa believes Japan may conduct joint yen intervention 'at any time' to stem the currency's falls. The yen is currently at a weak level, hurting the economy by boosting import costs.

Furusawa thinks Tokyo and Washington could step in again if the yen returns to levels hit before their joint intervention last month. In July, they drove up the yen to around 155.20 per dollar from a 40-year low of 163.99, but it has since slid back to around 159.50.

Furusawa said that intervention only buys time and more fundamental steps are needed to reverse the yen's downtrend. He believes faster rate hikes by the Bank of Japan (BOJ) would be crucial in this regard.

Market players expect the BOJ to raise rates in September, but Furusawa thinks it should do so. The BOJ has raised interest rates at a pace of roughly twice a year since exiting its massive stimulus in 2024 and raising rates to a 31-year high of 1 per cent in June.

Furusawa estimates that the BOJ would like to raise rates to around 1.5 per cent to 1.75 per cent, given Japan's neutral rate estimate of 1.1 per cent to 2.5 per cent.