Japan Steps In to Support Yen Amid Energy Shock Fears

Japan intervened in the foreign exchange market on Thursday to prop up its yen currency, which has been falling to four-decade lows due to the energy shock caused by the Iran war. This move comes ahead of the Bank of Japan's policy decision on Friday, where the central bank is expected to keep interest rates steady at 1% but signal its readiness to continue pushing up borrowing costs.

The intervention was a one-off in three months and involved yen-buying and dollar-selling operations. The dollar sank to a more than two-month low against the Japanese yen on Thursday, with the yen standing at 160.07 on Friday after hitting 159.22 per dollar earlier in the day.

Finance Minister Satsuki Katayama declined to comment on whether Tokyo intervened, but hinted that Japan was ready to respond with a sense of urgency to exchange-rate moves. This statement comes as markets have been on alert for yen-buying by Japanese authorities, who have warned of action for months due to the currency's weakness exacerbating living costs.

The U.S. Treasury Secretary Scott Bessent said that Japan may have intervened to prop up its yen currency, and added that the yen 'seems very undervalued to me'. The U.S. Treasury Department also released a semi-annual currency report earlier this month, warning that excess volatility in the currency was undesirable and calling for further BOJ rate hikes.

The intervention comes as South Korea also conducted dollar-selling intervention on Thursday, sending its won to a nine-month high. Japan's top currency diplomat Atsushi Mimura hinted at U.S. involvement in the effort to stem the yen's decline, including so-called rate checks by the Federal Reserve.