Japan Warns Markets Over Undervalued Yen as Policy Shifts
Japan's top currency diplomat warned markets to heed warnings about the yen's excessive decline as the Bank of Japan raises rates to combat import costs.
Japanese currency diplomat Atsushi Mimura warned markets on Monday to take at face value the "very clear" message from Tokyo and Washington regarding the yen's excessive decline. The warning followed high-level discussions between Japanese Prime Minister Sanae Takaichi and US President Donald Trump, as well as talks between Japanese Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent, all of whom reaffirmed that the currency's undervaluation is a matter of concern.
The yen spiked to approximately 156.75 against the dollar following Mimura's remarks. Japanese policymakers are concerned that a weak yen is driving up import costs for fuel amid the Middle East war. To combat this, the Bank of Japan recently raised interest rates to a 31-year high of 1.25 per cent.
Analysis from OCBC suggests the yen is nearing a turning point after becoming one of the most undervalued currencies globally. While a coordinated intervention by Japanese and U.S. authorities in July squeezed speculative short positions, OCBC argues that sustained recovery depends on domestic policy changes. The bank revised its end-2026 yen forecast to 155 against the U.S. dollar, down from 160, and expects it to reach 150 by the end of 2027. OCBC further anticipates that the Swiss franc may replace the yen as the preferred funding currency for carry trades as the yen strengthens.
