The Japanese yen briefly touched 164 against the dollar in late July 2026, its weakest level since the late 1980s, prompting Tokyo to issue its strongest verbal warning yet. Finance Minister Satsuki Katayama said on July 22 that Japan would 'take decisive action appropriately at any time' to counter the currency's slide. The move came as USD/JPY traded near 163.24 in New York earlier in the same week before breaking through to 164.
Why the yen's slide matters
A weaker yen raises import costs for fuel and food, squeezing households and businesses. It can benefit exporters up to a point, but the speed of the decline — from around 150 in early 2026 to 164 in a matter of months — has rattled markets. Currency intervention, when it comes, aims to slow moves that threaten domestic price stability, market functioning, or public confidence. It is not designed to win a price war, officials have stressed.
Japan's playbook: verbal warnings, then action
Japan's Ministry of Finance decides on intervention, and the Bank of Japan executes the orders. The BoJ typically uses foreign-exchange reserves and places orders through counterparties in bursts, making it harder for traders to anticipate the exact timing. Verbal intervention follows an escalation ladder: from 'closely watching' to 'sense of urgency' to explicit warnings like 'decisive action'. Katayama's July 22 statement sits at the top of that ladder.
The last time Japan intervened to buy yen was in October 2022, when USD/JPY hit 151.94. That intervention cost roughly $60 billion over several days. The current level of 164 is far higher, and the BoJ's reserves — while still large — have been drawn down in previous operations.
South Korea raises rates to defend the won
Seoul is taking a different approach. The Bank of Korea raised its base rate by 25 basis points to 2.75% on July 16, 2026, explicitly to stabilize the won and counter inflation. South Korea relies more on interest rate adjustments and steady communication than on direct intervention. Vice Finance Minister Huh Chang said Seoul is in close contact with Japan and other countries on foreign exchange and that the won appeared undervalued relative to fundamentals.
South Korea uses spot operations to smooth disorderly markets rather than defend a specific line. The rate hike signals that the central bank is willing to use its main tool — borrowing costs — to address currency weakness, even if it risks slowing domestic growth.
Katayama's warning puts markets on notice that intervention could come at any time, but the actual trigger remains unclear. Traders will watch for signs of BoJ testing the market with small orders or a sudden spike in USD/JPY volatility. The Bank of Korea's rate decision is already in effect, and the next move will depend on whether the won stabilizes and inflation eases. Both currencies face headwinds from a strong dollar and the Bank of Japan's reluctance to raise rates aggressively.
