Japan and South Korea Join Forces to Boost Currencies in Rare Intervention

Japan and South Korea have intervened in their currency markets in a rare joint effort, possibly with involvement from the United States. The intervention boosted the yen by its biggest amount in almost two years, but it may not be enough to reverse the currency's decline unless accompanied by interest rate hikes.

The Bank of Japan kept interest rates steady at 1%, a 31-year high, on Friday, but warned for the first time that underlying inflation could exceed its target. This has raised expectations that rate hikes may be on the cards in the future.

Japan's Prime Minister Sanae Takaichi is an advocate of low rates and raising government spending to drive growth, which has put pressure on the yen in recent months. However, a dissenting voice within the Bank of Japan suggests that there may not yet be widespread views among officials that rate hikes are necessary.

The intervention lifted the yen away from its 40-year lows it had been hovering around this week, but it handed some of that back on Friday as the market digested the news. The Korean won firmed 2% to its highest in nine months, and analysts believe that the joint effort could have doubled its impact.