Japan has sounded the alarm over the yen’s steep fall, showing a readiness to act if volatility worsens. This move comes as doubts continue to grow about the long-term strength of the US Dollar.
Japan’s Finance Minister, Satsuki Katayama, issued a fresh warning over the pace of the yen’s slide on Tuesday, raising the prospect of direct market intervention should volatility intensify. The caution came as the Japanese currency weakened beyond an eight-month low against the U.S. dollar, renewing fears of destabilising swings in Asia’s largest developed economy.
The yen has been under steady pressure throughout the autumn, reflecting widening yield differentials between Japan and the United States. The Bank of Japan’s cautious approach to tightening policy contrasts sharply with the Federal Reserve’s relatively hawkish tone, prompting investors to maintain carry trades that favour the dollar.
Speaking in Tokyo, Katayama said the government was watching “currency moves with a high sense of urgency” and reiterated that excessive fluctuations were “undesirable.” The statement was interpreted by traders as a potential prelude to coordinated action between the finance ministry and the central bank if the yen continues to weaken.
Dollar Strength Meets Its Own Doubts
While Tokyo frets over depreciation, the dollar’s own dominance is being questioned. According to a Bloomberg analysis, strategists at the Royal Bank of Canada warned that the greenback could face a “boom-and-bust” pattern reminiscent of the early 2000s, potentially shedding as much as 40 per cent in value over the next cycle. They argue that overstretched valuations, persistent US fiscal deficits and shifting global capital flows could combine to erode confidence in the currency.
A separate Reuters poll this week found most foreign-exchange strategists still leaning towards a weaker dollar outlook into 2026, though few expect a sharp reversal before the Federal Reserve begins cutting interest rates.
Markets on Alert
The twin narratives, a vulnerable yen and a dollar at risk of longer-term retreat, have left global currency markets finely balanced. The USD/JPY pair hovered just below 154 in Thursday trading, while the euro managed a tentative recovery above 1.15 against the dollar. Traders say volatility is likely to rise ahead of next week’s US inflation data and fresh comments from central-bank officials.
For now, Japan’s verbal intervention may be enough to steady nerves. But if the yen breaks decisively lower, few doubt that policymakers in Tokyo will step in more forcefully.
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