Japan’s Katayama says government is prepared to take decisive steps in FX market

Japanese Finance Minister Satsuki Katayama stated on Tuesday that the government is prepared to take decisive steps in the foreign exchange market. Officials will closely monitor market moves with heightened urgency to ensure that the yen reflects its underlying fundamentals. The aim is to sustain market confidence in the yen, reflecting the Takaichi administration's fiscal approach through clear, consistent communication.

The yen is one of the world's most traded currencies, with its value determined broadly by the performance of the Japanese economy, the Bank of Japan's policy, the differential between Japanese and US bond yields, and risk sentiment among traders. The Bank of Japan (BoJ) has the mandate for currency control, and its moves are critical for the yen.

The BoJ has directly intervened in currency markets in the past, typically to lower the value of the yen, although it avoids frequent intervention due to political concerns of its main trading partners. The ultra-loose monetary policy of the BoJ between 2013 and 2024 led to the yen depreciating against its main currency peers due to growing policy divergence between the Bank of Japan and other central banks, particularly the US Federal Reserve.

This widening differential, together with interest-rate cuts in other major central banks, has started to narrow and support the value of the yen. Generally viewed as a safe-haven investment, the yen tends to strengthen in times of market stress due to its perceived reliability and stability.