162 checkpoints lost, 170 curse approaching? Japanese yen defense war is at a turning point again, Japanese exchange rate authorities hint at US tacit approval of intervening in the exchange market.

Note that the highest official in charge of currency affairs in Japan has hinted that foreign exchange intervention is an effective strategy and pointed out that Tokyo maintains close communication with Washington on exchange rate issues. These comments come at a time when the Japanese yen is hovering near its lowest point in nearly forty years. Jun Suzuki, the vice minister in charge of international affairs at the Japanese Ministry of Finance, said in an interview on Wednesday that when Tokyo intervened in the market two months ago, it was "clearly meaningful" judging by subsequent market trends. He also indicated that Japan's intervention at the time did not face any opposition from the United States. He said, "As far as I know, the United States has never made any statement opposing what we have done. If there is any difference, it is that there have actually been some more supportive comments." Suzuki emphasized the frequency of his communication with officials in Washington, stating, "Through phone calls and emails, I may have more contact with my American counterparts than one might imagine." Suzuki made these remarks as the exchange rate between the Japanese yen and the U.S. dollar fell to a new low in 40 years, posing risks of accelerated inflation for a country that relies heavily on imports for energy and over half of its food. On Wednesday afternoon, the yen-to-dollar exchange rate in the Tokyo market fluctuated around 162.70, nearing its lowest level since 1986. Suzuki's statements indicate that he continues to view intervention as a useful tool to curb excessive volatility in the currency market, and that the United States largely remains in line with Tokyo's foreign exchange policy. While market participants remain cautious about the possibility of Japan intervening again, the release of U.S. labor data on Thursday and the subsequent holiday weekend could provide an opportunity for Tokyo to support the yen once more. In the interview, Suzuki did not explicitly outline the Ministry of Finance's stance on currency, including any declaration of readiness to take "bold action" (i.e. direct intervention in the FX market). Although this silence suggests that authorities may be willing to let the yen fall further before taking action, it could also be a way to maintain some element of surprise when deciding to intervene again in the coming days. Nevertheless, as authorities appear to have lowered their guard, some market participants see the yen reaching 164 to 165 yen per dollar as the next possible trigger for interventionstill a considerable distance from the current levels. According to data from the Ministry of Finance, Japan spent a record 11.73 trillion yen (equivalent to $721 billion) in the month ending May 27 to support the yen. It was revealed by sources that the Ministry of Finance intervened for the first time on April 30, when the yen exchange rate was approaching the 161 threshold. Traders also suspect that Tokyo took further action at the beginning of May. The yen initially strengthened to around 155, but even after the Bank of Japan raised interest rates to their highest level in 31 years on June 16, the yen gradually gave up these gains and continued to decline. The battleground of intervention Despite Suzuki's characterization of intervention as significant, the loss of gains and further depreciation of the exchange rate present policymakers in Tokyo with a dilemma: how often should they intervene when the costs may be higher and the effects weaker at each juncture. His mention of regular contacts with the U.S. on foreign exchange matters may lead some investors in the market to ponder over. Suzuki's boss, Finance Minister Kousuke Toyama, stated that she spoke with U.S. Treasury Secretary Bennett last week, highlighting strengthened cooperation and alignment between the two sides. Amid intervention speculations, this boosted the yen briefly. Following her visit to Tokyo in May, Bennett also boasted of close communication between the two sides, describing it as "continuous and robust." Bennett has hinted that he prefers to see the Bank of Japan let the yen reach an appropriate level freely rather than through intervention, but he has also coordinated with Tokyo in helping stabilize the yen earlier this year. In January, the U.S. Treasury department under Bennett's leadership had the New York Federal Reserve Bank examine the yen exchange rate, scaring speculators at the time and leading them to believe that joint intervention with the U.S. might be imminent. This helped prop up the yen without actual market intervention from either Tokyo or Washington, indicating additional fear factors brought by U.S. involvement to market participants. Further cooperation from the U.S. could assist in supporting Japan's reintroduction to the market. Economist Taro Kimura said, "The yen percentile regression model of Bloomberg Economics suggests that the yen falling below 162 (its lowest level since 1986) may not be the end of depreciation... Falling into the 170 range would not deviate from this model, and the possibility of a return to the low 150s seems much smaller." Amid ongoing weakness in the yen, markets are increasingly speculating that the interest rate differential between the U.S. and Japan may widen again, with investors expecting the Federal Reserve to pivot towards rate hikes later this year. Suzuki said, "Looking at the latest Fed dot plot, I dont think it signals they would do another two to three rate hikes," and added that he cannot comment on the policy direction of another country's central bank. The weakness of the yen threatens to exacerbate inflationary pressures in Japan, eroding the purchasing power of households. While businesses benefit directly from enhanced competitiveness, suppliers and domestically-oriented firms are facing pressure from rising import prices, increasingly passing on these costs to consumers. The Bank of Japan said earlier on Wednesday that the confidence of large manufacturing businesses rose to the highest level since 2018 in June, while sentiment among large non-manufacturing businesses was the most optimistic since 1991. However, these businesses' inflation expectations have also risen to record highs. Prime Minister Sanae Takii has attempted to soothe consumers by rolling out subsidies to limit fuel costs, but this strategy has had negative repercussions. Earlier this year, Takii's proposal for a massive cut in consumption taxes helped push up Japanese government bond yields, leading to a broader sell-off of bonds globally. Nevertheless, Suzuki stated that his overseas counterparts have never directly expressed concerns about Japan's fiscal policy, refuting market speculation that Takii's spending plans could harm the country's fiscal sustainability and further raise bond yields. He added that a report from the International Monetary Fund (IMF) indicates that Japan's fiscal situation has recently been viewed more positively internationally. Suzuki has held one of the top positions at the Ministry of Finance for the past two years, helping guide U.S.-Japan trade negotiations, supervising the launch of Japan's foreign investment review framework, and addressing challenges such as conflicts in the Middle East. He said that throughout his career, his priority has always been to ensure Japan plays its role on the global stage and maintains a strong presence. When asked about thoughts on a potential third term, Suzuki evaded the question with a World Cup analogy. He said, "When Japan is playing against Sweden in the group stage, I dont think the team is considering the game against Brazil. You just need to do what you need to do in the position you're in."