Japan Intervenes to Prop Up Yen Ahead of BOJ Policy Decision

Japan's government intervened in foreign exchange markets on Thursday by buying yen and selling dollars, its first such move in three months. The intervention came as the yen slumped to four-decade lows due to the Iran war-driven energy shock, exacerbating living costs. Finance Minister Satsuki Katayama said Tokyo is always ready to respond with a sense of urgency to exchange-rate moves.

The Bank of Japan's (BOJ) policy decision on Friday is also expected to keep markets on edge, with hawkish BOJ Governor Kazuo Ueda signaling the readiness to push up borrowing costs. The BOJ may decide to maintain interest rates steady at 1% but signal its intention to continue pushing up borrowing costs.

U.S. Treasury Secretary Scott Bessent said Japan's yen is 'very undervalued', suggesting Washington endorses Tokyo's efforts to combat a weak yen. However, the Treasury also called for further BOJ rate hikes, warning that inflation has strained households' purchasing power even as nominal wages rose.

The dollar sank to a more than two-month low against the Japanese yen on Thursday in what analysts said looked like official intervention. Japan spent a record 11.7 trillion yen ($73 billion) intervening in foreign exchange markets between late April and early May, but the brief boost to the yen was quickly wiped out.