Japan, US remain aligned on FX policy as yen hits 7-month high

Japanese Finance Minister Satsuki Katayama said on Tuesday that Tokyo and Washington remain aligned in their approach to currency markets, pledging continued close communication with the U.S. Treasury to ensure orderly foreign exchange movements. The remarks came as the yen extended a sharp rally, touching a seven-month high against the dollar.reuters

Intervention Stance Unchanged

Speaking at a regular news conference, Katayama said Japan's policy stance "has not changed at all" since the coordinated U.S.-Japan intervention to support the yen in late July, according to Reuters. She added that she had held talks with U.S. Treasury Secretary Scott Bessent during recent Group of 20 meetings and on other occasions.mettisglobal+1

The joint intervention, which began in July after the yen hit a 40-year low against the dollar, has totaled roughly 15.4 trillion yen, according to MUFG Research. It marked a rare instance of coordinated U.S.-Japan action in currency markets.mufgresearch+1

BOJ Rate Hike Expectations Fuel Yen Strength

The yen's rally has been driven by growing expectations that the Bank of Japan will raise interest rates at its September 18 meeting. BOJ Governor Kazuo Ueda said earlier this month that policymakers would debate a rate hike in September, citing heightening inflationary risks. Markets are now pricing in a roughly 97.5% probability of a hike, according to Polymarket data cited by Invezz.reuters+1

The BOJ raised its policy rate to 1% in June and has signaled it could accelerate the pace of tightening. The narrowing interest rate differential between the U.S. and Japan has begun unwinding carry trades that had weighed on the yen for years.fitchratings+2

Broader Context

The yen's rebound represents a reversal after months of weakness that prompted Japanese authorities to act. CNBC reported earlier this month that the USD/JPY pair briefly reached 155.28, its strongest level in a month at that time. The prospect of further BOJ tightening, combined with the deterrent effect of intervention, has shifted market sentiment. As one BOJ board member noted in a summary of July opinions, "the pace of policy interest rate hikes will be faster than market expectations".cnbc+1