Former Japanese foreign exchange market officials suggest: to prevent the depreciation of the yen, a combination of measures is needed, unilateral intervention alone is not as effective as "intervention + interest rate hikes" in the long run.

A former senior foreign exchange official in Japan stated that using foreign exchange reserves for market intervention can have an immediate impact on exchange rates, but if accompanied by a gradual rate hike by the Bank of Japan, the effect will be more long-lasting. Takehiko Nakao, who served as Vice Minister of Finance for International Affairs from 2011 to 2013, expressed this view in an interview. His comments come as the Japanese yen resumes its decline, and as Japan's election enters the final sprint before Sunday's voting. "Using real money to intervene in the market can have a strong impact, but if the Bank of Japan also shows a clear determination to steadily raise interest rates, the effect will be more lasting," said Nakao, who is now Chairman of the International Economic and Strategic Center. The Bank of Japan raised its short-term policy rate to 0.75% in December last year and has indicated readiness to continue pushing up borrowing costs. However, due to inflation persistently exceeding the Bank of Japan's 2% target for nearly four years, actual borrowing costs are still deep in negative territory. Nakao attributed the weakness of the yen to the Bank of Japan's still accommodative stance, noting that the slow pace of rate hikes has resulted in significantly negative real interest rates in Japan after adjusting for inflation, and the interest rate gap between the US and Japan remains wide. "Responding appropriately to inflation through rate hikes may also help restrain excessive jumps in long-term bond yields," he added. The former senior official warned that if the Bank of Japan's rate hike is slow, the yen may weaken further, and specifically mentioned the nomination of Kevin Warsh as the next Chairman of the Federal Reserve. "Warsh is likely to follow the tradition set by former Treasury Secretary Robert Rubin, who believed that a strong and stable dollar is in the best interest of the United States," he said.