Japan’s recent intervention to stabilize the yen reflects dynamics last seen during the late-1990s Asian financial crisis, according to a former top currency diplomat. Naoyuki Shinohara, who served as Japan’s vice finance minister for international affairs and as the IMF’s deputy managing director, said the current situation shares uncomfortable similarities with Thailand’s 1997 currency collapse despite Japan’s stronger fundamentals.
The comparison stems from Washington’s role in Tokyo’s July 31 joint action to prop up the yen. U.S. Treasury Secretary Scott Bessent publicly backed Japan’s efforts, urging Tokyo to use dollar swap lines rather than liquidating U.S. Treasuries to finance future currency support. Shinohara noted that such requests mirror past crises, when the U.S., Japan, and the IMF provided dollar funding to bolster foreign reserves in Thailand.
Shinohara emphasized the absence of standard coordination this time. Traditional interventions typically involve joint assessments among major economies and formal statements from the G7, neither of which materialized in the latest effort. He added that messaging from central banks is critical to signal resolve, warning that without coordinated signals, the impact of unilateral action is limited.
The yen has faced persistent depreciation pressure, prompting Shinohara to argue that rapid currency declines—not strength—pose the greater risk. He suggested that one or two additional rate hikes by the Bank of Japan, lifting rates from the current 1% to around 1.5%, would be necessary to stabilize the yen but may still prove insufficient to reverse its downtrend. External factors, such as a slowdown in U.S. growth or easing geopolitical tensions in the Middle East, could also ease pressure on the yen by reducing import costs.
Shinohara’s remarks underscore the challenges facing Japan as it navigates currency intervention amid limited global coordination and evolving policy constraints.
