Japanese Prime Minister Sanae Takaichi delivered a significant speech in the Diet on Wednesday, emphasizing that the government is ready to strictly monitor the nature of exchange rate fluctuations and stands prepared to take "necessary" actions. In response to inquiries, she explicitly stated that the most important thing is to ensure Japan's fiscal sustainability, defending her economic stimulus plan as not being "reckless spending." Notably, reduced market liquidity due to the U.S. Thanksgiving holiday has created a potential intervention window for Japanese authorities. The market is closely watching whether the Japanese government will shift from verbal warnings to substantive action.
Japanese Prime Minister Sanae Takaichi spoke in the Diet on Wednesday, stating that the government is ready to strictly monitor the nature of exchange rate fluctuations, distinguishing whether they are driven by economic fundamentals or speculative behavior, and stands prepared to take "necessary" actions. This tough stance comes amid reduced liquidity in the foreign exchange market due to the U.S. Thanksgiving holiday, drawing heightened attention from the market regarding possible intervention by Japanese authorities.
On November 26, according to media reports, in response to questions from opposition party lawmakers about the yen’s depreciation, Sanae Takaichi emphasized that the government is closely monitoring market volatility, including government bond yields and exchange rates. She also defended her economic stimulus plan, asserting that it is not "reckless spending," and pledged to work on reducing Japan’s debt-to-GDP ratio. She clearly stated:
"For me, the most important thing is to ensure Japan's fiscal sustainability."
From the market reaction, the prime minister’s verbal intervention had limited effect, with the yen exchange rate falling instead of rising.$JPY/USD (JPYUSD.FX)$It currently stands at the 156.43 level, still above the critical intervention threshold of 155.
Low trading volume during holidays creates opportunities for forex intervention.
Notably, this Thursday’s closure of U.S. markets for Thanksgiving and Friday’s shortened trading session for "Black Friday," combined with Japan's market closure on Monday, will create an ideal low-liquidity trading environment. Historical data shows that Japanese authorities tend to choose such periods to implement interventions, achieving more significant price impacts with fewer funds. Analysts noted that this "cost-effective" strategy has proven effective in past interventions.
Under Japan’s unique intervention mechanism, the Ministry of Finance decides on the timing of interventions, while the central bank acts as the executing body. Finance Minister Kotaro Nishida last week intensified verbal interventions, temporarily halting the yen’s depreciation trend. However, with the dollar continuing to strengthen since October, the market is closely watching whether authorities will use this "golden window" to translate verbal warnings into actual actions.
The key challenge facing Japanese authorities lies in effectively curbing excessive yen depreciation without depleting foreign exchange reserves. This Thanksgiving holiday may witness a pivotal shift as the Japanese government moves from verbal warnings to substantive action.
Editor/melody