Yen rises as Japan signals firmer currency stance

Highlights

The yen gained as much as 0.6% to 156.38.
It outperformed all other G-10 currencies.
The BOJ policy rate now stands at 1.25%.

The yen strengthened as much as 0.6% to 156.38 per dollar before easing to 156.97 by 3:45 p.m. in Tokyo. It also gained as much as 0.6% against the euro and 0.9% against the Australian dollar. The broad advance made the yen the strongest-performing G-10 currency on Wednesday, Bloomberg reports.

Tokyo pushes back against yen weakness

Japanese officials have sharpened their language on the exchange rate in recent days. Atsushi Mimura, the country’s top currency official, said Monday that Japan’s prime minister and finance minister, along with the U.S., had recently delivered a clear message about currency depreciation.

Prime Minister Sanae Takaichi has also taken a firmer position on the yen, describing its undervaluation as problematic last week. She said U.S. President Donald Trump shared concerns about the currency’s weakness when the two leaders met.

The change in tone has added another consideration for currency traders after a long period in which low Japanese borrowing costs made the yen a popular funding currency.

Wednesday’s move was also influenced by month-end and quarter-end transactions. Such flows can temporarily increase demand for a currency as institutional investors rebalance portfolios and adjust hedges.

Higher rates alter the yen trade

Bank of Japan's policy is adding support to the currency. The central bank raised its benchmark interest rate to 1.25% earlier this month, and speculation is growing that another increase could come as early as October.

That shift matters for a currency that investors have long used to finance positions in higher-yielding assets. Higher Japanese rates reduce the interest-rate advantage available from borrowing yen and investing elsewhere, making those trades less attractive.

The yen has strengthened about 3.5% this quarter. Japan and the U.S. also carried out their first joint currency intervention in 15 years in July, demonstrating a willingness to counter further depreciation.

On a trade-weighted basis, the yen has gained 2.33% in September, its strongest monthly advance since April 2025, according to the Bank of Japan’s nominal effective exchange-rate index.

October puts policy back in focus

The yen enters the new quarter with several forces working differently from earlier in the year. Japanese interest rates are higher, officials have become more explicit about excessive depreciation, and the currency has recovered part of its previous losses.

Some of Wednesday’s advance may fade once quarter-end transactions are completed, making the next policy decisions more important for determining whether the recovery continues.

A further BOJ rate increase would narrow the yield gap that has encouraged investors to fund positions in yen. After a roughly 3.5% quarterly advance and a move through 157 per dollar, the currency is already reflecting a markedly different backdrop from the one that drove its earlier weakness.

We also reported Japan signals renewed yen support as Trump, and Takaichi discuss currency pressure.

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