Yen Weakness May Trigger Joint Intervention, Faster BOJ Hikes: Ex-Diplomat

Japan's former top currency diplomat, Mitsuhiro Furusawa, has warned that the yen's current weakness is unsustainable and that Tokyo could intervene in currency markets again, potentially in coordination with Washington, at any time.

Speaking in an interview, Furusawa described the yen as "clearly too weak" at current levels, noting that it is hurting the economy by inflating import costs. He said intervention was not tied to a specific exchange rate threshold, such as 160 or 162 yen per dollar, but could occur whenever authorities deem moves excessive.

His comments come after a rare joint US-Japan intervention last month, which lifted the yen from a 40-year low of 163.99 to around 155.20 per dollar. The currency has since slipped back to roughly 159.50, underscoring the limits of intervention without supporting policy changes.

Furusawa, who retains close ties with incumbent policymakers, argued that the Bank of Japan (BOJ) must do more than intervene. He said the central bank should raise rates in September and, more importantly, signal that future hikes could come at a faster pace than the roughly twice-a-year rhythm seen so far.

He estimated the BOJ's desired terminal rate at around 1.5% to 1.75%, based on its own assessment that Japan's neutral rate lies between 1.1% and 2.5%. After a September move, he expects the next hike in December or January, followed by another in the next fiscal year, assuming the economy stays on track.

Market pricing has already shifted toward a September hike, with odds rising sharply after hawkish BOJ communications and a nudge from US Treasury Secretary Scott Bessent. Furusawa stressed that the government should not obstruct the central bank's tightening path and must uphold its fiscal sustainability pledge.

He said the ideal outcome would be for monetary and fiscal policy to work together to correct the yen's excessive weakness, while growth strategies strengthen the economy, allowing the currency to appreciate gradually over time.

Furusawa, who now heads Sumitomo Mitsui Banking Corp's Institute for Global Financial Affairs, previously served as deputy managing director at the IMF and met Bessent last year through the APEC Business Advisory Council.