The yen is once again approaching the 160 mark. Former Japanese foreign exchange diplomat warns that the US and Japan may "intervene jointly" at any time, and the Bank of Japan may accelerate interest rate hikes.

According to reports from Jinse Finance APP, Mitsuhiro Furusawa, former Chief Foreign Exchange Diplomat of Japan, stated that Japan may initiate a joint yen intervention "at any time" and hinted that interest rates could be raised faster than expected to stop the yen's depreciation. Furusawa said that the current level of the yen is "clearly too weak," which is driving up import costs and harming the economy. He also added that if the yen returns to the levels before the joint intervention by Tokyo and Washington last month, the two countries might intervene again.

“It may not be a matter of intervening when the USD/JPY exchange rate reaches 160 or 162. Intervention could happen again at any time, including coordinated action with the United States,” he said in an interview on Thursday. Furusawa maintains close contact with current policymakers in Japan and abroad.

Previously, coordinated intervention by Japan and the United States pushed the yen-dollar exchange rate from a 40-year low of 163.99 to around 155.20. Since then, the yen has fallen back to around 159.40 against the dollar. Furusawa stated that intervention can only buy time, and that reversing the yen’s downtrend would require more fundamental measures, such as the Bank of Japan accelerating rate hikes.

Furusawa said: “Most market participants believe the Bank of Japan will raise rates in September, and I think it should raise rates.” However, more importantly, the central bank should signal the possibility of accelerating rate hikes.

Since ending its massive stimulus program that lasted a decade in 2024, the Bank of Japan has increased interest rates at a pace of about twice a year, including raising rates to 1% in June, the highest level in 31 years.

“According to the Bank of Japan's estimate of the neutral interest rate—that is, a rate that neither restrains nor stimulates economic growth—being between 1.1% and 2.5%, my guess is the Bank of Japan aims to raise rates to around 1.5% to 1.75%,” Furusawa said.

“After September, the next move could be in December or next January. Then, if the economic growth momentum doesn’t weaken, rates could be raised again sometime in the next fiscal year (starting from April 2027),” he said.

Hints from US Treasury Secretary Scott Bessent and a series of hawkish statements from the Bank of Japan have cemented the possibility of a rate hike in September. Data shows the market currently sees a 76% chance of a rate hike in September, compared with just 24% on July 30.

Furusawa said it is important that Prime Minister Sanae Takai's government does not obstruct Bank of Japan rate hikes and fulfills its commitment to fiscal sustainability. Furusawa said: "The ideal outcome is to escape excessive selling of the yen through monetary and fiscal policy, while enabling the growth strategy to take effect and strengthening Japan's economic power. This would allow the yen to gradually appreciate over time."

After leaving Japan's Ministry of Finance, Furusawa served as Deputy Managing Director of the International Monetary Fund until 2021. He is currently Director of the Global Financial Affairs Research Institute at Sumitomo Mitsui Banking Corporation. Last year, as a member of APEC’s business advisory council—ABAC, he met Bessent.