Yen collapses below 163, Finance Minister warns of "decisive and bold" intervention but turns out to be a "paper tiger"

According to Zhitong Finance APP, two senior Japanese officials spoke out on Wednesday, stating that authorities are ready to take action in the foreign exchange market if necessary. However, these verbal interventions have failed to provide effective support for the continuously weakening yen.

Finance Minister Satsuki Katayama said on Wednesday: "The US-Iran situation has suddenly deteriorated, to a degree beyond global expectations, creating an extremely severe external environment." She reiterated, "Our policy stance remains completely unchanged: if necessary, we will take appropriate and bold action at any time." On the same day, Chief Cabinet Secretary Minoru Kihara also warned that appropriate responses would be made to foreign exchange volatility as needed.

Due to the renewed escalation of the US-Iran conflict driving up oil prices, the yen-dollar exchange rate temporarily fell below the 163 mark overnight, the first time since 1986. In early trading Wednesday, after Kihara's remarks, the yen stabilized around 163.16.

The market has become immune to “verbal intervention”

Marito Ueda, President of SBI FX Trade, stated: "The market is indifferent because officials keep repeating the same rhetoric. While actual intervention cannot be completely ruled out, the market is well aware that intervention is costly and extremely difficult to execute."

Japanese authorities intervened in the market between April 28 and May 27, deploying 11.73 trillion yen (about $71.9 billion) to support the yen. However, due to expectations of fiscal expansion in Japan and the looming pace of Federal Reserve rate hikes, the yen remains at its weakest level in four decades.

Against this backdrop, investors are largely ignoring the Japanese government's recent series of efforts to stabilize the exchange rate. Last week, Katayama issued a warning to speculators, saying the government is "ready to act decisively at any moment"—the strongest language in weeks—but this also failed to boost the yen.

Other policy tools have also had little effect. Earlier this week, a footnote was added to the economic and fiscal management policy approved by Japan's Cabinet, emphasizing respect for the Bank of Japan's independence—seen as an assurance to the market that the government will not obstruct central bank rate hikes. Additionally, officials put forward various proposals to encourage domestic investment.

Rodrigo Catril, Senior FX Strategist at National Australia Bank, pointed out that Middle East tensions typically drive the dollar-yen rate higher by pushing up oil prices. He said: "If, as we expect, the US-Iran situation worsens further before easing, the possibility of the dollar-yen moving toward 165 is much greater than returning below 162 in the short term."