Japan Prepares for Joint Yen Intervention and Faster BOJ Rate Hikes

Tokyo's former top currency diplomat Mitsuhiro Furusawa warns that Japan may conduct joint yen intervention at any time to stem the currency's falls. The yen is considered too weak, hurting the economy by boosting import costs. If the yen returns to levels hit before last month's joint intervention with Washington, Tokyo and Washington could step in again.

Furusawa suggests that intervention only buys time, with more fundamental steps needed to reverse the yen's downtrend. Faster rate hikes by the Bank of Japan (BOJ) are crucial, with most market players believing the BOJ will raise rates in September and Furusawa agreeing it should happen. The BOJ has raised interest rates at a pace of roughly twice a year since exiting a massive stimulus in 2024.

Furusawa estimates that the BOJ would like to raise rates to around 1.5percent to 1.75percent, with its estimate that Japan's neutral rate sits in a range of 1.1percent to 2.5percent. He predicts another hike sometime next fiscal year if the economy doesn't lose momentum.