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The Bank of Japan raised interest rates to their highest level in 30 years, yet the yen tumbled to record lows. The outcome is the exact opposite of what Japan intended. With the government now signaling possible intervention in the currency market, uncertainty is only growing. Japan Warns of “Appropriate Action” as Yen Slides On Monday, Atsushi Mimura, Japan’s vice finance minister for international affairs and the country’s top currency diplomat, warned that recent foreign exchange movements had been “one-sided and sharp.” He added that authorities are prepared to take “appropriate action” if exchange-rate moves become excessive—a clear signal that currency intervention is on the table. Finance Minister Satsuki Katayama had made similar remarks late last week, saying Tokyo would respond appropriately to excessive and speculative currency moves. Sponsored Sponsored The warnings came as the yen hit historic lows. On Monday, the dollar climbed to 157.67 yen. The euro reached 184.90 yen, and the Swiss franc touched 198.08 yen, both record lows for the Japanese currency. Market participants believe Japanese authorities are likely to intervene if the dollar approaches 160 yen. Last summer, the BOJ sold approximately $100 billion at similar levels to prop up the currency. Why Is the Yen Weakening Despite a Rate Hike? Under normal circumstances, raising interest rates strengthens a currency. Higher rates attract foreign capital seeking better returns. On Dec. 19, the BOJ raised its benchmark rate by 0.25 percentage points to 0.75%, the highest level since 1995. Yet the yen moved in the opposite direction. Several factors explain this paradox. First, the rate hike was already fully priced in. The overnight index swap market had assigned nearly 100% probability to the move before the meeting. This triggered a classic “buy the rumor, sell the news” reaction. Investors who had bought yen in anticipation of…

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Filed under: News - @ December 22, 2025 3:12 am