Japan warns about the yen, exchange rate hits record high.

Senior officials expressed "deep concern".

On December 22, a senior Japanese official warned about the depreciating trend of the yen, calling it a "deep concern" amid market speculation about the possibility of government intervention in the foreign exchange market.

Atsushi Mimura, Vice Minister for International Affairs at Japan's Ministry of Finance, described the recent exchange rate fluctuations as "one-sided and abrupt." This statement came after the yen fell by more than 1% on December 19, even as the Bank of Japan (BOJ) raised interest rates to 0.75%, the highest level in 30 years.

During trading on December 22nd, the yen's exchange rate against the USD remained relatively stable at 157.4 yen per USD. However, against the euro, the yen has yet to recover significantly from its record low of 184.71 yen per euro set on December 19th.

“We are witnessing skewed and abrupt movements, especially since last week’s monetary policy meeting. Therefore, I am deeply concerned,” Mimura stated. He added that the government may have a “appropriate response to excessive movements,” a phrase traders interpreted as a signal of preparation for intervention in the exchange rate.

The BOJ's efforts have not yet convinced the market.

Despite the Bank of Japan's interest rate hikes and continued monetary policy normalization, Governor Kazuo Ueda appears unable to convince traders to stop selling the yen. Following the meeting, Ueda pledged further tightening, but the timing and magnitude of future rate hikes remain uncertain.

This was reflected in the bond market as well. The yield on 2-year Japanese government bonds, which is sensitive to policy interest rates, rose to a record high of 1.105% on December 22nd. The yield on 10-year bonds also surpassed the 2% threshold on December 19th.

Analysts believe the bond sell-off stems from concerns that a prolonged depreciation of the yen will drive inflation higher, forcing the BOJ to raise interest rates faster than expected. Additionally, Prime Minister Sanae Takaichi's economic stimulus plans require further bond issuance to raise capital, adding further pressure to the market.

Experts predict the likelihood of intervention.

Yujiro Goto, a strategist at Nomura Bank, believes that the Japanese Ministry of Finance may soon take "decisive action." He argues that Mimura's statements indicate a high level of concern within the government.

"We need to monitor the language he uses. If he starts saying that the yen's movements are 'disorderly,' the market could see that as a sign that intervention is imminent," Goto analyzed.

According to this strategist, the Bank of Japan's interest rate decision and comments on December 19 did not provide a strong enough signal about the future interest rate hike path, causing investors to continue selling off the Japanese currency.