Weak Yen Tests U.S.-Japan Currency Pact as Tokyo Warns of New Intervention

The weak yen is putting the U.S.-Japan currency partnership to a new test. Japan’s finance minister said this week that Tokyo would “act without hesitation if necessary,” and a senior U.S. Treasury official said the yen’s level has to change. Their comments, made on the sidelines of the International Monetary Fund and World Bank meetings in Bangkok on Oct. 15 and 16, came after the yen fell to its weakest level of the month against the dollar.

What happened this week

The yen slid to as low as 158.95 per dollar after U.S. consumer price data released on Wednesday, Oct. 14, showed the fastest inflation in five months, Bloomberg reported. The same report pushed U.S. stocks lower and lifted bets on a Federal Reserve rate increase, as The Boston Report covered that day.

On Thursday morning, Oct. 15, Finance Minister Satsuki Katayama told reporters in Bangkok: “Our stance on foreign exchange remains completely unchanged from the message we sent when our two countries conducted coordinated intervention. The US is here with us right now, and we will act without hesitation if necessary.” The yen had already pared some of its losses as U.S. Treasury yields eased, Bloomberg reported.

Later that day, Katayama said she had told Group of 20 finance officials that “we must closely watch financial market developments with a high sense of urgency,” Reuters reported. The G20 meeting ended without a joint communique or chair’s statement.

On Friday, Oct. 16, U.S. Treasury Under Secretary Erin Browne said Japan no longer faces the deflationary environment it had for more than a decade, and that the level of its currency and its monetary policy must change accordingly, Reuters reported. “Sharp, disorderly currency moves can … really create much wider consequences that force investors to unwind positions and creates volatility across markets, and potentially raises financing costs in both the United States, and really globally,” Browne said.

The July joint intervention

The warnings carry weight because the two governments have acted together before. On July 31, Japan’s Ministry of Finance bought yen “in coordination with the U.S. Department of the Treasury,” Katayama said in an Aug. 3 statement. She said the action followed a joint statement by the two finance ministers in September 2025 and was meant to counter “excessive volatility and disorderly movements” in the yen. The statement added that Japan “will not hesitate to conduct further joint intervention” and plans to use the Federal Reserve’s FIMA repo facility, which lets foreign central banks raise dollars against their U.S. Treasury holdings without selling them.

The yen had been trading around 164 per dollar before that operation, the first joint action to support the yen in 28 years, The Japan Times reported. President Donald Trump described the intervention at the time as a sign of friendship. On Sept. 24, Katayama said “the principles since the previous joint intervention remain alive,” according to Reuters.

The yen at the leaders’ level

The currency also came up when Prime Minister Sanae Takaichi met Trump in New York on Sept. 22. In an interview with broadcaster NTV aired Oct. 1, Takaichi said: “At the Japan-U.S. leadership meeting, they spoke of the difficulties American trade is facing due to the weak yen, to which I responded that as a rule of thumb an undervalued yen is a problem.” She also said Treasury Secretary Scott Bessent had not made any requests about the direction of Japan’s economic policy.

Three days after the summit, Katayama and Bessent held a phone call in which they “reaffirmed that … the undervaluation of the yen is a matter of concern,” according to a Japanese Finance Ministry readout. Bessent has repeatedly suggested the Bank of Japan should raise interest rates to help the yen find an appropriate level, The Japan Times reported.

Why a weak yen matters on both sides of the Pacific

For Japan, a weak yen raises the cost of imports, including fuel, which has spiked because of the Middle East war, Reuters noted. Disruption in the Strait of Hormuz has also driven up insurance costs for tankers carrying crude to Asia. Japanese exporters, by contrast, earn more in yen when overseas sales are converted back.

For Washington, the issue is trade. Japan is one of 10 economies on the Treasury Department’s currency “Monitoring List,” according to the July 23 foreign exchange report, which found that no major trading partner manipulated its currency during the four quarters through December 2025.

The Bank of Japan decision ahead

The Bank of Japan raised its policy rate in September to the highest level in 31 years, Reuters reported. Its next decision is due Oct. 30. Officials are leaning against a back-to-back increase this month while keeping a December move open, people familiar with the matter told Bloomberg, adding that the decision could change until the last minute.

Katayama also told reporters that Japan is among the few advanced economies able to make a credible case for fiscal sustainability, pointing to the Takaichi government’s commitment to steadily reduce the debt-to-GDP ratio. “Not every country has made such commitments as explicitly as we have,” she said.

Reactions

Takaichi has avoided specific comments on currency levels. “I believe increasing the competitiveness of Japan’s economy will ultimately lead to trust in the yen,” she said in the NTV interview. Browne said U.S. and Japanese officials work closely together at all levels to support stable, well-functioning markets and will continue to do so. Japanese officials have generally played down the influence of U.S. comments on their policy decisions, The Japan Times reported.

For more on U.S. alliances and global markets, see The Boston Report’s Geopolitics hub.

Featured photo: Japan’s Ministry of Finance building in Kasumigaseki, Tokyo, in October 2024. Photo by Kakidai, CC BY-SA 4.0, via Wikimedia Commons (cropped).

Sources

• The Business Times (Bloomberg): Japan’s Katayama renews FX warnings after US CPI heats up
• CNA (Reuters): Japan tells G20 must watch FX moves with high sense of urgency
• Reuters (via Investing.com): US Treasury says Japan no longer faces deflationary environment, yen level must change
• Japan Ministry of Finance: Statement by Minister Katayama, Aug. 3, 2026
• Japan Ministry of Finance: Japan-U.S. Finance Ministerial Meeting, Sept. 25, 2026
• The Japan Times: Takaichi told during Trump talks that weak yen was hurting U.S. trade
• Reuters: Japan’s Katayama says principles of Japan-US FX intervention remain in place
• U.S. Treasury: Report on Macroeconomic and Foreign Exchange Policies, July 23, 2026
• The Japan Times (Bloomberg): BOJ is said to lean against back-to-back rate hike in October
• Prime Minister’s Office of Japan: Japan-U.S. Summit Meeting (Summary), Sept. 22, 2026