Japan's Finance Minister issued a clear warning to the foreign exchange market again on Friday, stating that Tokyo is maintaining regular communication with Washington. Even though the yen has rebounded from its 40-year lows, the government remains prepared to step in to support the currency if necessary. Previously released US non-farm payroll data showed moderate performance, weakening market expectations for aggressive Fed rate hikes. The US dollar trended generally weaker, giving the yen some breathing room.

During a regular press conference, the Finance Minister emphasized that the stance remains unchanged and appropriate responses will be made at any necessary time. To highlight the government's vigilance, officials specifically noted that contact between Japanese and US authorities on forex issues continued uninterrupted despite the US holiday. The yen suddenly jumped against the dollar on Thursday; traders were wary that Japan might intervene and were also nervous about new methods officials might adopt for buying yen. However, the market generally believes the movement was too small to confirm that intervention actually occurred. On Friday, the yen traded near 161.2 per dollar, after falling to 162.84 on Tuesday, hitting a 40-year low.

The long-term weakness of the yen is increasingly becoming a problem for policymakers. Depreciation has pushed up import costs for raw materials, exacerbating pressure on households and businesses. Energy price hikes triggered by geopolitical conflicts had already burdened the domestic economy. New evidence of pressure on the corporate sector emerged this week. A think tank report showed that bankruptcy cases related to the weak yen reached 45 in the first half of this year, an increase of 32.3% compared to the same period last year. The report pointed out that the weakening yen led to rising import costs for materials and commodities, especially pressuring wholesalers with limited pricing power. Such bankruptcies may remain high in the foreseeable future. In response, the Finance Minister stated that the government intends to fully implement relevant measures to revitalize private sector activity.

However, increasing fiscal stimulus may come at a high cost. Investors remain wary of the Prime Minister's spending plans, keeping the bond market uneasy. Even strong tax revenue failed to calm investor concerns. Data from Japan's Ministry of Finance shows that tax revenue for fiscal 2025 reached 84.2 trillion yen, 3.5 trillion yen higher than government forecasts, marking a record high for the sixth consecutive year. However, on Friday, the yield on Japan's benchmark 10-year government bond touched a 30-year high. Investors believe the government's economic blueprint will drive large-scale new spending and signal resistance to further central bank rate hikes. This economic blueprint emphasizes that the government believes close coordination with the central bank is crucial, and states that it is very important for the central bank to align policy decisions with efforts to strengthen the economy.

The Finance Minister dismissed suggestions of a policy shift, stating that the blueprint merely reiterates what the government has always said. He added that the government remains committed to maintaining market confidence in Japan's fiscal health. However, as the yen and Japanese government bonds come under pressure, signs of unease are beginning to appear within the government. A member of the Prime Minister's economic advisory panel, seen as dovish, called for a moderate rate hike by the central bank. An economist said on Thursday that a moderate central bank rate hike is very important to correct excessive yen weakness and curb unwanted surges in yields. This economist was previously seen as a supporter of loose fiscal and monetary policies.