The Japanese yen "black swan" could strike at any time! Japan's finance minister strongly warns currency market speculators.

Japan's Finance Minister Kato Matsuki issued the strongest warning to currency market speculators on Monday, stating that Japan has ample room to take bold actions against speculative exchange rate fluctuations. Kato Matsuki clearly indicated that these trends are evidently due to speculative behavior and has made it clear that bold actions will be taken. This statement suggests that Japan may launch interventions in the currency market amounting to tens of billions of dollars at any time. Following the news, the yen strengthened, breaking above the 157 yen per dollar mark, and the black swan risk in the currency market has surged.

The Strange Phenomenon of the Yen Falling After the Bank of Japan's Interest Rate Hike

The trigger for this black swan crisis in the Japanese yen exchange market came from the Bank of Japan's interest rate hike decision last week. The Bank of Japan raised borrowing costs to the highest level in 30 years, and the market originally expected this move to boost the yen, as higher interest rates typically attract capital inflows. However, after the decision, the yen weakened instead, plummeting significantly last Friday, and this unusual trend has put the Ministry of Finance on high alert.

The reason for the depreciation of the yen after the interest rate hike lies in the statements made by Bank of Japan Governor Kazuo Ueda. At the press conference following the decision, Ueda did not send a stronger signal regarding further interest rate increases, which disappointed some market participants. Forex speculators interpreted this as the Bank of Japan's hawkish stance being weaker than expected, leading to a significant short-selling of the yen and driving the USD/JPY to rise rapidly.

Katsuyuki Katayama clearly pointed out in an interview that the yen's movement last Friday “was clearly not driven by fundamentals but was due to speculative behavior.” This characterization is extremely crucial as it provides a legitimate basis for intervention in the Japanese foreign exchange market. According to the rules of the International Monetary Fund (IMF), member countries can only intervene when there are “disorderly fluctuations” in exchange rates or when they are “seriously disconnected from fundamentals.” Katayama's statement is paving the way for potential intervention actions.

The Japanese Ministry of Finance intervened in the foreign exchange market last year, injecting about 100 billion USD to support the yen, with most operations occurring when the USD/JPY was close to 160. In 2025, the yen is still expected to be the worst-performing currency against the USD among the G10 currencies, with a cumulative depreciation exceeding 10%. If speculative selling continues to drive up the USD/JPY, Japan may repeat last year's large-scale market intervention, which could become one of the biggest black swan events in the foreign exchange market in 2025.

The joint statement between Japan and the United States grants Japan intervention with the “sword of state”

Kiyoshi Katsuyuki mentioned the joint statement with the United States, indicating that she may have received tacit approval from Washington: if necessary, Japan could take action to intervene in the foreign exchange market without further consultation. Her predecessor, Minister of Finance Katsunobu Kato, signed this joint agreement on Exchange Rate with U.S. Treasury Secretary Scott Bessent in September.

The statement emphasizes that both countries are committed to letting the market determine the Exchange Rate, while also confirming that there is still room for intervention in certain circumstances, including during periods of excessive Fluctuation in the Exchange Rate. Katayama Satsuki said: “This means we have ample room for action.” The implication of this statement is that Japan has received the “no objection” commitment from the United States, allowing it to take unilateral action in the foreign exchange market when deemed necessary.

The impact of this tacit understanding on the Japanese yen Exchange Rate market is profound. In the past, Japan needed to coordinate with the United States and other G7 countries for Exchange Rate interventions to avoid triggering international disputes or being accused of “Exchange Rate manipulation.” However, this joint statement provides pre-authorization, allowing Japan to respond swiftly during Exchange Rate fluctuations without going through lengthy international negotiation processes. This significantly enhances the surprise and effectiveness of interventions, while also exposing speculators to higher black swan risks.

Three Main Triggers for Japan's Forex Intervention

US Dollar to Japanese Yen Breaks 160 Barrier: Last year's intervention mainly occurred around this price level, which is viewed by the market as Japan's “red line”. A further breakout could immediately trigger action.

Daily Fluctuation Exceeds a Certain Range: Former top foreign exchange official Kanda Masato once stated that a fluctuation of 10 yen within a month might be considered too fast, and a daily fluctuation exceeding 2-3 yen could also trigger intervention.

Thin Liquidity Period During Christmas Holidays: When asked if intervention might be possible during the holidays, Kitayama Satsuki stated, “We are always fully prepared,” suggesting that they may take advantage of low liquidity periods to amplify the effects of intervention.

Unordered Fluctuation and the Ambiguous Space of Intervention Timing

Katsuragawa Satsuki refrained from commenting on the current foreign exchange levels and added that there is no clear specific benchmark for what constitutes excessive or disorderly fluctuations. She said, “Every situation is different, so it is incorrect to expect the same pattern to emerge each time.” She also pointed out that the Ministry of Finance's strategy regarding intervention would vary depending on the circumstances.

This kind of ambiguity is a strategy in itself. If Japan clearly announces that “it will intervene when the USD/JPY exceeds level X”, speculators will take profits before that level, rendering the intervention meaningless. Conversely, maintaining ambiguity and unpredictability prevents currency market speculators from assessing safe boundaries, thereby being able to deter speculative behavior more effectively. This “strategic ambiguity” is very common in currency market interventions and is also a part of central banks' psychological warfare.

When asked whether authorities might intervene in the market as trading volumes are expected to dwindle with the Christmas holidays approaching, Katayama Satsuki stated, “We are always fully prepared.” This statement is thought-provoking because liquidity is thin during the holiday period, and a similar scale of intervention funds can have a greater price impact. If Japan chooses to make a surprise intervention in the foreign exchange market during Christmas, it may achieve more significant effects at a lower cost, which would pose the greatest black swan risk for speculators.