During Friday's Asian trading session, the USD/JPY pair moved in a narrow range, hovering near 159.45. This level sits almost precisely at the 50% retracement of the 164.00 pre-intervention high and the 155.00 co-intervention low, marking a critical battleground for bulls and bears.
Mitsuhiro Furusawa, a former top currency official at Japan's Ministry of Finance, issued a clear warning in an interview on Thursday, stating that the current yen exchange rate is "clearly too weak." He added that Japan and the United States are "ready" to intervene jointly at any time, without being constrained by specific levels such as 160 or 162. He also predicted that the Bank of Japan (BOJ) would raise interest rates in September, followed by another move in December or January, with a final policy rate target potentially between 1.5% and 1.75%.
Furusawa's stance effectively confirms a logic that the market has been gradually absorbing: whether through verbal warnings or actual intervention, these actions can only buy time. The key to truly reversing the yen's decline lies in the BOJ's pace of rate hikes. This position elevates the yen narrative from a "single intervention event" to a "tightening cycle of multiple rate hikes," providing the market with a more sustainable trading framework.
Intervention "Ready" to Strike Again with No Fixed Price Red Line
Furusawa, currently the chairman of the Global Financial Affairs Institute at Sumitomo Mitsui Banking Corporation, who previously handled foreign exchange affairs for Japan's Ministry of Finance and later served as a deputy director at the International Monetary Fund (IMF), stated that the current yen level is "clearly too weak" and is harming the Japanese economy by pushing up import costs. He noted that if the yen were to fall back to levels seen before last month's joint intervention, Tokyo and Washington could act again at any time, but emphasized that there is no fixed trigger level. "Intervention may not be specifically aimed at a specific level like 160 or 162 yen to the dollar, but it could happen again at any time, including joint action with the United States," he said.
Last month, a coordinated US-Japan intervention pushed the yen from a 40-year low of 163.99 to a sharp appreciation around 155.20. However, as of this week, the exchange rate has retraced to around 159.45, giving back nearly half of the earlier gains and rekindling the market pressures that prompted the initial action by the two governments.
Intervention Only "Buys Time," Faster Rate Hikes by the BOJ Are the Real Solution
Furusawa emphasized that intervention alone can only buy time. To sustainably reverse the yen's downward trend, more fundamental measures are needed—primarily faster rate hikes by the BOJ. He said that most market participants already expect the central bank to raise rates in September, and the BOJ should do so. However, he believes that more important than the September hike itself is the need for the central bank to communicate a signal that the pace of future rate hikes may accelerate.
Since exiting its decade-long stimulus program in 2024, the BOJ has roughly raised rates at a pace of two times per year, including a hike in June to 1.0%, the highest in 31 years. Looking further ahead, Furusawa estimates that the central bank ultimately wants to raise rates to between 1.5% and 1.75%. This judgment is based on the BOJ's own estimate that Japan's neutral rate—a level that neither cools nor overheats the economy—is in a range of 1.1% to 2.5%. He expects the next rate hike after September to occur in December or January, and if the economy does not stall, there could be further hikes in the fiscal year 2027 (starting in April).
Market Repricing Accelerates, September Rate Hike Probability Surges to 76%
Market pricing has rapidly converged with this expectation. Driven by a "push" from US Treasury Secretary Bessent and a series of hawkish communication signals from the BOJ, a September rate hike has been effectively "locked in." According to data from Tokyo Tanshi, the implied probability of a September rate hike has surged from just 24% on July 30 to 76%.
Government Should Not Hinder Tightening; Ideal Path is Policy Coordination and Gradual Appreciation
Furusawa also specifically pointed out that the government of Prime Minister Shigeru Ishiba should not obstruct the BOJ's rate hikes and should fulfill its commitments to fiscal sustainability. "The ideal outcome is to use monetary and fiscal policy to escape the situation of an excessively sold yen, while growth strategies begin to take effect and strengthen the Japanese economy," he said. He added that such a combination would allow the yen to appreciate gradually over time, rather than through sudden intervention actions.
Summary
In summary, Furusawa's remarks draw a clear roadmap for the yen's outlook: intervention is a "tool ready for use at any time" but not a fundamental solution. Accelerated rate hikes by the central bank are the core driver. A policy path of initiation in September, follow-up in December/January, and a final move towards 1.5%-1.75% is gradually becoming market consensus. For traders, this means the yen narrative has shifted from "defending a specific level" to "tracking the tightening cycle"—a more sustainable and tradeable logic. In the short term, the further rise in the probability of a September rate hike and the potential threat of US-Japan joint intervention will together exert downward pressure on the USD/JPY exchange rate. However, whether the yen can truly trend higher still depends on the actual pace of Japan's economic fundamentals and the BOJ's subsequent actions.
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