Japan may see more yen intervention, faster BOJ rate hikes, ex-top FX diplomat says

By Leika Kihara and Takaya Yamaguchi

TOKYO, Aug 14 (Reuters) – Japan may conduct joint yen intervention “at any time” and signal the chance of faster-than-expected interest rate hikes to stem the currency’s falls, said Tokyo’s former top currency diplomat Mitsuhiro Furusawa.

The yen is “clearly too weak” at current levels and hurting the economy by boosting import costs, Furusawa said, adding that Tokyo and Washington could step in again if the yen returns to levels hit before their joint intervention last month.

“It is probably not a matter of intervening specifically at, say, 160 or 162 yen per dollar. But intervention could take place again at any time, including coordinated action with the United States,” he told Reuters in an interview on Thursday.

Tokyo’s coordinated intervention with Washington drove up the yen to around 155.20 per dollar from a 40-year low of 163.99. It has since slid back to around 159.50.

Intervention only buys time with more fundamental steps needed to reverse the yen’s downtrend, such as faster rate hikes by the Bank of Japan (BOJ), said Furusawa, who retains close contact with Japanese and overseas incumbent policymakers.

“Most market players believe the BOJ will raise rates in September and I think it should,” though what is more crucial is for the central bank to communicate the likelihood of a faster pace of rate hikes, Furusawa said.

Since exiting a massive, decade-long stimulus in 2024, the BOJ has raised interest rates at a pace of roughly twice a year including in June, when it took rates to a 31-year high of 1%.

“My guess is that the BOJ would like to raise rates to around 1.5% to 1.75%” judging from its estimate that Japan’s neutral rate – or the level that neither cools nor overheats growth – sits in a range of 1.1% to 2.5%, Furusawa said.

“After September, the next move would likely come in December or January, followed by another hike sometime in the next fiscal year (beginning in April 2027), provided that the economy does not lose momentum,” he said.

A nudge from U.S. Treasury Secretary Scott Bessent and a slew of hawkish BOJ communications have locked in a rate hike in September. Markets now see a 76% chance of a hike in September, according to Tokyo Tanshi data, compared with 24% on July 30.

Furusawa said it was important that Prime Minister Sanae Takaichi’s administration does not get in the way of the BOJ’s rate hikes and meet its pledge on fiscal sustainability.

“The ideal outcome would be to use monetary and fiscal policy to move away from a situation where the yen is excessively sold, while growth strategies begin to bear fruit and strengthen the Japanese economy,” Furusawa said. “That would allow the yen to appreciate gradually over time.”

After his stint at Japan’s finance ministry, Furusawa served as deputy managing director of the International Monetary Fund until 2021 and is currently president of Sumitomo Mitsui Banking Corp’s Institute for Global Financial Affairs. He met Bessent last year as a member of ABAC, a group of business executives advising Asia-Pacific Economic Cooperation leaders.

(Reporting by Leika Kihara; Editing by Sam Holmes)