The excessively weak yen exchange rate might trigger the government to intervene. The question is, on what level will they intervene?

Speculation regarding currency intervention continues to influence the Japanese yen. The USD/JPY exchange rate has been above the 145.00 threshold for the past few days without any signs of intervention, causing market participants to wonder about Japan's actual intervention zone. Atsushi Takeuchi, former head of the BoJ's forex division involved in yen intervention from 2010-2012, shared his perspective.

USD/JPY

Japan allowed the yen's exchange rate to weaken for years in pursuit of inflation targets and reinvigorate its economy. A weaker exchange rate enables exporters to market Japanese products more competitively in the international market, bringing various benefits. However, an excessively weak yen exchange rate also adversely affects the Sakura nation. The question is, at what exchange rate is the yen considered too weak?

Analysts have argued over the past few months that two thresholds could trigger Japanese intervention in the currency market. These two USD/JPY 'intervention zones' are situated within the range of 145 and 150. One reason is that the Japanese government immediately launched a billion-dollar intervention after USD/JPY breached 145 last year. Atsushi Takeuchi holds a different view. He leans more toward the 150 threshold as a benchmark.

"Authorities usually don't have a specific line in the sand in mind. But key thresholds like 150 are important for political reasons, as they are easy to understand," said Atsushi Takeuchi.

According to Takeuchi, the timing of intervention will depend on the views of Japanese companies and households. On the other hand, the public has become more accepting of a weak yen exchange rate compared to a year ago. The benefits of yen depreciation have also become clearer post-pandemic, such as boosting the recovery of inbound foreign tourists and domestic service companies.

"When to intervene has always been an extremely political decision in Japan. Nowadays, it's the prime minister that ultimately makes the call," Takeuchi told Reuters on Tuesday.

"Public discontent over the weak yen isn't escalating to a scale seen last year," he said. "I don't think Kishida is under huge pressure to respond."

Instead, Takeuchi states that the Japanese government could opt for intervention if the USD/JPY accelerates and breaches 150. Before that, Japanese authorities will issue verbal warnings about the exchange rate situation in the hope that the market will self-correct.

"Even if intervention isn't imminent, as policymakers, you don't want to appear as if you're indifferent to market moves."