The yen falls below the 163 mark, hitting a nearly 40-year low; Japan’s Finance Minister warns of “bold action”

The yen continues to be under pressure, dropping to its lowest level in nearly forty years as the verbal interventions by Japanese authorities become increasingly limited in effect.

On Wednesday, the yen fell below the 163 mark against the US dollar, hitting a new low not seen in nearly 40 years. In response, Japan's Finance Minister Satsuki Katayama warned at a press conference that authorities are ready to take "appropriate and bold actions" at any time, but most traders believe such statements have little real impact on the exchange rate. The immediate trigger for this round of depreciation is the rapidly worsening US-Iran situation, which has heightened market risk aversion and caused a massive flow of funds into the dollar.

The yen's breakdown further exposes the Japanese economy's vulnerability to geopolitical shocks. Government data show that Japan's trade deficit unexpectedly widened to $2.5 billion in June, more than double analysts' expectations. Meanwhile, a surge in oil prices has fueled market expectations of a Fed rate hike, further strengthening the dollar and putting the yen under dual pressure.

Market participants point out that, as verbal warnings are increasingly ignored, investors are actively testing the true willingness of the Japanese authorities to intervene, and the downside risk for the yen has not dissipated.

Effectiveness of Verbal Warnings Questioned, Market Actively Probing the Bottom Line

According to the Financial Times, Satsuki Katayama said at Wednesday’s press conference that Japan's policy stance on the issue of potential intervention "remains unchanged," and stated that it will act "whenever necessary." She also described the current situation as "a sudden and unexpected worsening in US-Iran relations—a deterioration that the world had not anticipated—which has created an extremely difficult environment."

However, traders reacted indifferently to these remarks. The report noted that several Tokyo traders said Katayama’s warnings had almost no effect on the USD/JPY rate, and the market even interpreted this as an "invitation"—to test how far the authorities are genuinely willing to act.

Yujiro Goto, chief FX strategist at Nomura Securities in Tokyo, said:

"Since we haven't heard any strong verbal intervention signals from Ministry of Finance International Bureau chief Atsushi Mimura, the market is actively testing the intervention threshold. We tested at 162 yen, and now it’s 163 yen; the authorities are clearly tolerating a higher FX level than they did in April or May."

The last time Japanese authorities directly intervened in the market was from late April to late May this year, with interventions totaling as much as 11.73 trillion yen (about $71.9 billion), which once prompted a sharp rebound in the yen. However, the impact of this intervention was fully digested by early June, and the yen subsequently resumed its decline, breaching successive multi-decade lows.

In early July, the yen broke below the 162 mark—a level previously seen as an "unbreakable red line" that once triggered intervention by authorities. But in the end, there was no action, prompting analysts to reassess what the new intervention trigger might be.

According to reports, informed sources reveal that the ultimate decision-maker on intervention, Ministry of Finance International Bureau chief Atsushi Mimura, seems to have quietly shifted strategies. Previously, he was accustomed to issuing a "final warning" in public before intervening, while the new strategy is to be more unpredictable, keeping the market guessing in order to maintain the deterrent effect of intervention.

Double Blow from Geopolitics and Trade Deficit

Behind this round of yen depreciation are multiple negative factors combined. Reports indicate that Tokyo traders say the reignition of the US-Iran conflict and tensions in Gulf countries have led to a sharp recent rise in oil prices, which has "inevitably" pushed up the USD/JPY and other currency exchange rates.

Analysts point out that rising energy costs have triggered speculation over a possible Fed rate hike, providing further support for the dollar.

Meanwhile, Japan's own economic data has only made matters worse. The June trade deficit unexpectedly widened to $2.5 billion, more than double analysts' expectations. Analysts believe that the worsening Iran conflict has deteriorated Japan's trade terms, while the weak yen has amplified the structural vulnerability of a country highly dependent on energy and food imports.

According to analysts, considering the current situation, the market's core question has shifted from "Will the authorities intervene?" to "At what level will they step in?" As the yen continues to break through previously key support levels without triggering intervention each time, investor sensitivity to verbal warnings is systematically declining.

Goto says that unless or until Mimura gives a clear signal, the market will continue to test higher intervention thresholds.