The Japanese yen is once again approaching the 160 mark. A former Japanese foreign exchange diplomat has warned that the US and Japan could "jointly" intervene at any time, and the Bank of Japan may accelerate its pace of interest rate hikes.

Mitsuhiro Furusawa, Japan's former chief foreign exchange diplomat, stated that Japan may engage in joint intervention to support the yen "at any time," hinting at the possibility of raising interest rates at a faster pace than expected to curb the yen's decline. Furusawa noted that the yen's current level is "clearly too weak," driving up import costs and harming the economy. He also added that if the yen returns to levels seen before the coordinated intervention by Tokyo and Washington last month, the two countries might take action again. "This isn't just about whether intervention occurs at a dollar-yen exchange rate of 160 or 162. Intervention could happen at any time, including coordinated actions with the United States," he said in an interview on Thursday. Furusawa maintains close ties with current policymakers in Japan and abroad. Previously, coordinated intervention by Japan and the United States pushed the yen's exchange rate against the dollar from a 40-year low of 163.99 to around 155.20. Since then, the exchange rate has fallen back to around 159.40. Furusawa indicated that intervention can only buy time, and to reverse the yen's downward trend, more fundamental measures need to be taken, such as accelerating interest rate hikes by the Bank of Japan. Furusawa stated, "Most market participants believe the Bank of Japan will raise rates in September, and I think it should." However, it is more important for the central bank to communicate the possibility of accelerating the pace of rate hikes. Since the end of its massive stimulus program last year, the Bank of Japan has increased rates at a pace of about twice a year, including raising rates to a 31-year high of 1% in June. "Based on the Bank of Japan's estimate of the neutral interest rate (the level that neither suppresses nor stimulates economic growth) being between 1.1% and 2.5%, I would guess that the Bank of Japan aims to raise rates to around 1.5% to 1.75%," Furusawa said. "After September, the next move might take place in December or January next year, and if economic growth momentum does not weaken, there could be another rate hike sometime in the next fiscal year (starting April 2027)," he said. Hints from U.S. Treasury Secretary Scott Pelley and a series of hawkish remarks from the Bank of Japan have solidified expectations for a rate hike in September. Data shows that the market currently estimates a 76% probability of a rate increase in September, up from just 24% on July 30. Furusawa emphasized that it is crucial for Prime Minister Fumio Kishida's government not to hinder the Bank of Japans rate hikes and to fulfill its commitments to fiscal sustainability. He said, "The ideal outcome is to alleviate the excessive selling of the yen through monetary and fiscal policies while allowing growth strategies to take effect, thus strengthening Japan's economic power. This would gradually appreciate the yen over time." After leaving the Ministry of Finance, Furusawa served as deputy managing director of the International Monetary Fund until 2021. Currently, he is the director of the Global Financial Affairs Research Institute at Sumitomo Mitsui Banking Corporation. Last year, he met Pelley as a member of the Advisory Council for APEC leaders (ABAC).