The yen collapsed at 163, and the finance minister warned of a “decisive and bold” intervention but as a “paper tiger”

The Zhitong Finance App learned that two senior Japanese officials spoke out one after another on Wednesday, saying that the authorities are ready to take action in the foreign exchange market if necessary. However, the relevant verbal intervention did not provide effective support for the continued weakening of the yen.

Finance Minister Satsuki Katayama (Satsuki Katayama) said on Wednesday: “The situation between the US and Iran has suddenly deteriorated. The extent of the deterioration has exceeded global expectations and is creating an extremely severe external environment.” “Our policy position remains completely unchanged: we will act appropriately and boldly whenever necessary,” she reiterated. On the same day, Chief Cabinet Secretary Kihara Minoru also warned that appropriate responses to foreign exchange fluctuations will be made as needed.

Affected by the escalation of the US-Iran conflict and the rise in oil prices, the exchange rate of the yen fell below the 163 mark overnight, for the first time since 1986. In early trading on Wednesday, the yen held steady around 163.16 for the time being after Kihara's speech.

The market is immune to “verbal intervention”

SBI FX Trade President Marito Ueda said: “The market is ignoring this because officials keep repeating the same arguments. Although the possibility of actual intervention cannot be completely ruled out, the market has seen it through — intervention is expensive and extremely difficult to implement.”

The Japanese authorities used 11.73 trillion yen (about 71.9 billion US dollars) to intervene to support the yen between April 28 and May 27. However, the yen remained at its weakest level in 40 years due to rising expectations of Japan's fiscal expansion and the close pace of the Federal Reserve's interest rate hike.

In this context, investors have largely ignored the Japanese government's recent series of efforts to stabilize the exchange rate. Last week, Katayama issued a “ready to act decisively” warning speculators. The wording was the strongest in weeks, but it also failed to boost the yen.

Other policy tools have had little effect. At the beginning of this week, a footnote was added to the economic and financial operation policy approved by the Japanese cabinet, emphasizing respect for the independence of the Bank of Japan — a move seen as an attempt to assure the market that the government will not prevent the central bank from raising interest rates. In addition, officials have proposed a number of programs to encourage domestic investment.

Rodrigo Catril, a senior foreign exchange strategist at the National Bank of Australia, pointed out that tension in the Middle East usually strengthens the dollar against the yen by pushing up oil prices. He said, “If, as we expected, the tension between the US and Iran deteriorates further before easing, then the possibility that the dollar will move to 165 against the yen is far greater than the possibility that it will return below 162 in the short term.”