By Leika Kihara and Makiko Yamazaki
TOKYO, May 8 (Reuters) – Japan is wagering that a hawkish shift at the Bank of Japan and an endorsement from U.S. Treasury Secretary Scott Bessent can give yen-buying intervention extra bite and help slow the embattled currency’s slide.
It is a strategy reliant on a small cast of heavyweights – the BOJ, the Japanese finance ministry and Washington – and aimed less at a dramatic turnaround than at raising the cost of betting against the yen.
Governor Kazuo Ueda’s hawkish pivot last month marked an inflection point, bringing the central bank into rare alignment with the Ministry of Finance (MOF) and presenting markets with a more unified front as authorities seek to arrest the yen’s decline.
Two days after Ueda’s remarks on April 28, the MOF conducted its first yen-buying intervention in nearly two years – a move followed by several bouts of action in May, sources have told Reuters.
Having supposedly spent nearly 10 trillion yen ($63.7 billion) in the current round of interventions, analysts say Tokyo may be counting on Bessent’s visit to Japan next week to deliver an additional jolt, whether through explicit endorsement or carefully chosen words that signal U.S. tolerance for Japan’s actions.
‘SIGNIFICANT ALIGNMENT’
“At this time, it is a significant alignment,” said Bart Wakabayashi, branch manager at State Street in Tokyo, referring to Japanese officials working closely with the U.S. to undercut yen bears.
“It is significant, particularly in the fact that Japan is not doing this alone. We’re looking to see if something comes out of these Bessent meetings, but I think even just the appearance that they’re talking about FX levels is important,” he said.
Bessent played a key role in propping up the yen in January, when he called for speedier BOJ rate hikes to arrest yen falls and led the U.S. to conduct an unusual rate check – widely viewed as a prelude to possible coordinated intervention.
During his three-day stay, Bessent is expected to meet his Japanese counterpart, Satsuki Katayama and Prime Minister Sanae Takaichi.
The central bank said on Friday that Ueda will travel from Saturday through May 13 for a Bank for International Settlements meeting in Switzerland, likely ruling out talks with Bessent in Tokyo.
“No one wants to fight the U.S.,” said Atsushi Takeuchi, a former central bank official who took part in Tokyo’s past market forays.
“I’m sure Japanese policymakers are approaching Washington on various fronts, as it would make a huge difference if Bessent openly endorses Tokyo’s intervention,” he said.
Top currency diplomat Atsushi Mimura said on Thursday Tokyo was in daily contact with U.S. authorities, adding that his counterparts “fully understand our thinking and our actions.”
MARKETS WATCHING BOJ PLAY
Once Bessent leaves Tokyo, the burden shifts back to the BOJ in backing MOF’s yen-stabilising efforts.
A lineup of speeches by senior officials ahead of the June policy meeting will be scrutinised for any hint that last month’s hawkish tilt is becoming policy reality.
Unlike past episodes when Ueda’s dovish language gave traders an excuse to sell yen, this time around his focus on rising inflation risks from a weak yen has effectively kept a June rate hike in play.
Multiple MOF sources, speaking on condition of anonymity, said Ueda’s communication has been unusually effective in guiding market expectations.
“If the BOJ indeed raises rates in June, that makes it easier to squeeze in another hike by year-end,” said a source familiar with the BOJ’s thinking.
Ueda is scheduled to deliver a closely watched speech on June 3, days before the June 15-16 meeting, where markets are debating whether policymakers will lift rates to 1.0% from 0.75%.
Deputy Governor Ryozo Himino and board members Kazuyuki Masu and Junko Koeda will also speak later this month, with any hint they may back a hike likely to embolden yen bulls.
All three of them voted for the BOJ’s decision to keep rates steady in April, when three others in the nine-member board dissented and called for a hike to 1.0%.
POLITICS, GLOBAL FORCES DRAG ON YEN
A complication could come from Prime Minister Takaichi, a longstanding proponent of loose policy who has previously pushed back against BOJ tightening. While quiet publicly, she has stacked the central bank board with monetary doves and recently rebuked trade minister Ryosei Akazawa for suggesting a rate hike could support the yen.
“The premier doesn’t want the BOJ to raise rates. But she also wants to do something about rising living costs,” which meant yen-buying intervention was the only viable option, a government source told Reuters.
Structural forces are tightening the vice. Japan’s heavy reliance on energy imports means the oil shock unleashed by the Iran war is blowing out the trade deficit, reinforcing downward pressure on the currency regardless of domestic policy shifts, analysts say.
Yet, Tokyo’s renewed market forays, backed by firmer policy signals, could give authorities room to hold the line until global conditions become less hostile.
“Critics often argue that intervention serves little purpose beyond delaying the underlying market trend,” said Rong Ren Goh, a portfolio manager in the fixed income team at Eastspring Investments in Singapore. “But even if intervention has not fundamentally reversed the market’s directional bias, it has at least broken the momentum.”
Left unchecked, sustained yen selling risked cascading into a more disorderly depreciation, Goh said, making it “much harder for the authorities to contain.”
($1 = 156.9000 yen)
(Reporting by Leika Kihara and Makiko Yamazaki; additional reporting by Tamiyuki Kihara, Yoshifumi Takemoto and Rocky Swift in Tokyo, Ankur Banerjee in Singapore;Editing by Shri Navaratnam)
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