Japan and the U.S. could step in to support the yen again “at any time,” according to Mitsuhiro Furusawa, Tokyo’s former top currency diplomat, who also said the Bank of Japan should signal faster interest rate hikes to stem the currency’s decline.

The Yen is ‘Clearly Too Weak’

The yen is “clearly too weak” at current levels and is hurting Japan’s economy by pushing up import costs, Furusawa told Reuters, adding that Tokyo and Washington could intervene again if the currency slides back toward levels seen before their joint intervention.

“It is probably not a matter of intervening specifically at, say, 160 or 162 yen per dollar,” Furusawa said. “But intervention could take place again at any time, including coordinated action with the United States.”

Last month, Japan’s Ministry of Finance purchased yen in coordination with the U.S. Treasury to counter excessive volatility, with both countries pledging to intervene again if disorderly market conditions continue.

The yen fell past 163 to the dollar in July, marking its weakest level in nearly four decades, before a joint U.S.-Japan intervention lifted it back to around 155. At the time of writing, it would take 159.35 yen to buy a dollar.

A Rate Hike Looks Increasingly Likely in September

Furusawa said intervention alone only buys time, and that faster BOJ rate hikes are needed to reverse the yen’s downtrend.

“Most market players believe the BOJ will raise rates in September and I think it should,” Furusawa said, adding that it’s equally important for the central bank to signal a faster pace of future hikes.

In June, the central bank raised its interest rates to a 31-year high from 0.75% to 1%.

Furusawa estimates the central bank would ultimately like to raise rates to 1.5% to 1.75%.

Earlier this month, economist Mohamed El-Erian said the U.S. and Japan are using “strong words as a substitute for actual market intervention” to discourage investors from testing policymakers’ resolve.

Takaichi’s Government Faces Its Own Pressure

The former forex diplomat said Prime Minister Sanae Takaichi‘s government shouldn’t stand in the way of BOJ rate hikes.

Takaichi reportedly urged BOJ Governor Kazuo Ueda in May to be ready to buy government bonds if needed to curb rising borrowing costs, amid concerns that higher defense spending could push yields up.

The BOJ and the Government of Japan did not immediately respond to Benzinga’s request for comment on Furusawa’s statements.

Japan’s debt-to-GDP ratio currently stands at 248.7%, the highest in the world.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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