Furusawa Warns Japan May Intervene in Yen Again, BOJ Rate Hikes Looming

Tokyo's former top currency diplomat Mitsuhiro Furusawa says Japan may conduct joint yen intervention at any time, including coordinated action with the United States. The yen is 'clearly too weak' and hurting the economy by boosting import costs, according to Furusawa.

Furusawa believes that Tokyo and Washington could step in again if the yen returns to levels hit before their joint intervention last month, which drove up the yen to around 155.20 per dollar from a 40-year low of 163.99.

The BOJ has raised interest rates at a pace of roughly twice a year since exiting a massive stimulus in 2024, and Furusawa thinks it should raise rates again in September. He estimates the neutral rate for Japan to be between 1.1% and 2.5%, suggesting that the BOJ would like to raise rates to around 1.5% to 1.75%.

Furusawa also emphasized the importance of Prime Minister Sanae Takaichi's administration not getting in the way of the BOJ's rate hikes and meeting its pledge on fiscal sustainability. He believes that a gradual appreciation of the yen over time would be ideal, but intervention only buys time with more fundamental steps needed to reverse the yen's downtrend.