USD/JPY slides as officials flag yen weakness as a shared concern

USD/JPY dropped to 157.00 from 157.75 following renewed talk about the yen being undervalued from multiple officials.

This marks the second instance of verbal intervention today. Earlier, Katayama took the unusual step of making public that Trump had raised the weak yen with Takaichi during their UN meeting this week, and that Takaichi responded, "as a general principle," that a cheap yen is problematic. That move sparked a roughly 30-pip reaction. Now Katayama reports that she and Bessent "reaffirmed the point that the undervaluation of the yen is a problem" and that she anticipates the "excessive" yen selling will be rectified. She even hinted that the market "misunderstood" something.

The phrasing is not new. "Substantial undervaluation" has been the Treasury's terminology since the July 31 coordinated intervention, when USD/JPY was near 164. What stands out is the elevated level of officials making these comments. The message now spans from finance ministers up to national leaders, and Tokyo's decision to publicize a confidential summit exchange appears coordinated.

The backdrop is also significant. The joint intervention brought the pair from 163.73 to the mid-150s. Two months later, much of that decline has been reversed because the interest rate differential still rewards shorting the yen. Officials are aiming to halt the slide before it reaches a retest of the highs. With reports of rate checks and both governments on record, this is currently a game of chicken. The US has already shown it will place its own balance sheet on the other side of the trade, but is that sufficient to make an impact?

The challenge lies in the BOJ having already complied with Washington's requests. It raised rates to 1.25% last week, a quicker pace than previously, with Bessent openly advocating for it, yet USD/JPY barely responded. That is why the leaders are now being brought into play. Intervention and verbal warnings buy time, but with the rate differential still wide, a sustained move below 155 likely requires the BOJ to signal that the next hike will come earlier than the market anticipates.

USD/JPY 10 mins: