The Japanese yen weakened past 144.5 per dollar on Wednesday, marking its third consecutive session of losses as markets responded to a combination of dovish signals from policymakers and volatility in the domestic bond market.
Japanese yen weakens further
The currency continued to face pressure as traders digested remarks from Bank of Japan Governor Kazuo Ueda, who emphasized the growing uncertainty in the economic outlook due to ongoing trade negotiations with the United States. While Ueda reaffirmed the BOJ’s commitment to its inflation targets, he also reiterated that the central bank remains open to policy adjustments if economic conditions warrant — a comment that reinforced expectations for continued policy flexibility, though not necessarily a shift toward tightening in the near term.
Adding to the dovish tone, Finance Minister Katsunobu Kato confirmed that the government is closely monitoring financial market conditions, particularly in the bond market, where recent developments have unsettled investors. On Tuesday, both the yen and Japanese government bond (JGB) yields fell sharply following reports that the Ministry of Finance (MOF) may reduce the issuance of super-long-term bonds, including 30- and 40-year maturities. This potential move is widely seen as an attempt to stabilize the yield curve and address growing investor concerns after last week’s dismal 20-year bond auction, which saw the weakest demand in more than a decade.
The soft auction results have raised alarm bells about the sustainability of investor appetite for long-duration Japanese debt, especially in an environment where global yields are rising and inflation uncertainty persists. A further reduction in long-term bond issuance could relieve some pressure on yields but may also signal that Japanese authorities are concerned about the increasing cost of debt issuance — a development that complicates the BOJ’s ultra-loose monetary stance and its long-standing yield curve control (YCC) strategy.
Focus on upcoming 40-year JGB auction
Market participants are now turning their focus to the upcoming 40-year JGB auction, which is expected to serve as a litmus test for investor confidence in the super-long end of the yield curve. A weak showing could reinforce expectations of further intervention by the MOF and BOJ, potentially through bond market operations or revised issuance plans. Meanwhile, the yen’s continued weakness — now approaching levels that may spark concern from currency authorities — is fueling speculation that verbal or even direct intervention could be on the horizon if depreciation accelerates further.
Despite the yen’s decline, Japanese equities have remained relatively resilient, as a weaker currency tends to support export-driven sectors. However, the broader picture remains complex, with the yen caught between supportive domestic monetary policy, uncertain fiscal signals, and a challenging global macroeconomic environment. Investors will be watching closely for any shifts in tone from Japanese officials in the coming days, particularly ahead of key central bank meetings and additional trade-related announcements from the U.S.
