Economy
Yen weakens further after hitting 40-year low, prompts intervention talks
Japanese officials reiterated on Tuesday that they stand ready to respond to currency movements, maintaining the unchanged rhetoric despite the yen’s slide to a four-decade low.
The yen accelerated its decline to hit 162.41 in Tuesday morning trade after breaching the 162-per-dollar level for the first time since 1986, renewing speculation that Tokyo could intervene in the market at any time.
“It all comes down to being ready to respond appropriately to currency moves at any time,” Finance Minister Satsuki Katayama said at a regular news conference, when asked about the yen’s fall past 162 per dollar, repeating language authorities have used consistently.
Responding to a question on whether her sense of urgency has changed, Katayama said her message has remained unchanged.
The references to appropriate action “includes the possibility of decisive measures, as confirmed at a recent online meeting with the United States,” she said.
Government officials have said privately that authorities’ “final warning” on April 30, issued just hours before the last bout of intervention, remains in place, underscoring the risk of sudden action in the currency market.
Tokyo spent a record 11.7 trillion yen ($72.17 billion) intervening in foreign exchange markets between late April and early May.
In a separate press conference, Chief Cabinet Secretary Minoru Kihara said the government will build an economic structure that is resilient to foreign exchange fluctuations while standing ready to take action in the market if needed.
Kihara said he would not comment on the current foreign exchange levels, remarks echoed by Katayama.
The yen has remained under downward pressure despite the latest rate hike by the Bank of Japan (BOJ) this month, as the move has done little to alter the fundamental drivers in foreign exchange markets.
Japan’s interest rates remain far below those in the U.S., leaving a wide yield gap that favors the dollar and sustains carry trades, in which investors borrow cheaply in yen and invest in higher-yielding currencies.
The government’s forthcoming annual economic policy blueprint is expected to signal a preference for keeping borrowing costs low, Reuters reported last week, fuelling concerns that the central bank may be discouraged from raising rates further.
Higher tolerance for a weaker yen?
A persistently weak yen is lifting import costs and stoking price pressures, at a time when the Middle East-driven energy shock has made fuel prices volatile. But it also boosts the profits of Japanese exporters in yen terms.
The absence of an intervention is stoking speculation that the government’s tolerance threshold for yen weakness has shifted higher.
“If public support for Prime Minister Sanae Takaichi’s government remains intact despite the weak yen, the administration could interpret that as a sign that voters have accepted a weak yen,” Masafumi Yamamoto, chief strategist at Mizuho Securities, said in a report to clients.
Prashant Newnaha, a senior rates strategist at TD Securities, said unilateral intervention has so far been ineffective, and policy makers have failed to send clear signals on the possibility of intervention.
“Given the USD’s broad uptrend against global currencies, the risk is skewed towards a more delayed intervention, perhaps within a 163-165 range,” Newnaha said.
On the other hand, some traders and government officials said room for further yen weakness may be limited in light of lower oil prices and receding inflation fears in the United States.
U.S. jobs data to be released on Thursday could set a fresh direction for currency trends, they said.
Türkiye’s central bank on Wednesday simplified its reserve requirement framework by abolishing the additional lira reserve requirement previously applied to foreign currency deposits/participation funds.
The Central Bank of the Republic of Türkiye (CBRT) also said it was raising reserve ratios for foreign currency liabilities.
In a statement, the bank said the move sought to “strengthen macrofinancial stability and support the monetary transmission mechanism.”
Under the decision, the requirement introduced in 2023 obliging banks to hold additional Turkish lira-denominated reserve requirements against foreign currency deposits and participation funds has been terminated. The additional reserve ratio had most recently been set at 2.5%.
At the same time, the CBRT increased reserve requirement ratios for foreign currency deposits.
It said the reserve requirement ratios applied to foreign currency deposits/participation funds had been revised to 32% from 30% for demand deposits and deposits with maturities up to one month, and to 28% from 26% for those with longer maturities.
Foreign currency
deposits/participation funds
Previous ratio New ratio Demand deposits and deposits with
maturities up to 1 month
30% 32% With longer maturities 26% 28%
Inflation in Istanbul eased slightly on both an annual and a monthly basis in June, data from a major chamber showed on Wednesday, ahead of the release of nationwide data later this week.
Consumer prices in Türkiye’s largest city advanced 35.94% year-over-year last month, the Istanbul Chamber of Commerce (ITO) said, thus slowing down from 36.77% registered in May.
Month-over-month prices rose 1.14%, ITO said. This marked a lower increase than 1.53% seen in May.
Driving the monthly surge in prices was the communication group, with a surge of 4.28%, and the alcohol and tobacco group with 4.20%, the survey showed. The prices, however, regressed in transportation (-0.95%) and the clothing and footwear group (-2.21%).
On a yearly basis, education and housing continued to weigh on the overall inflation picture, being the two groups with the highest surge at 52.51% and 46.29%, respectively.
The ITO data comes prior to the official nationwide data due to be released by the Turkish Statistical Institute (TurkStat) on Friday.
Inflation in the country picked up recently amid Iran-related war-related pressures, after a long downward streak that saw it drop to the 30s from over 70%.
Economists polled recently by Anadolu Agency (AA) expect Türkiye’s inflation rate to decline slightly in June.
The consumer price index (CPI) is forecast to rise 1.04% month-on-month in June, according to the average estimate of 17 economists who took part in the Finance Inflation Expectations Survey. Their monthly inflation forecasts ranged between 0.81% and 1.77%.
Consumer prices rose 1.71% month-over-month in May.
At the same time, annual inflation is expected to fall to 32.17% in June from 32.61% in May, the poll showed.
Türkiye’s manufacturing activity contracted again in June after a slight rebound in May, as the war in the Middle East disrupted demand and supply, a business survey showed on Wednesday.
The Istanbul Chamber of Industry’s (ISO) Türkiye Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, fell to 47.1 in June from 49.8 in May. The 50-mark separates growth from contraction.
Output returned to decline after rising slightly in May, with firms citing market uncertainty linked to the conflict in the Middle East, softer new orders and higher prices.
Demand weakened further, with total new orders posting a solid decline, and new export business also falling again after expanding in May.
The June survey reversed some of May’s improvement and extended the sector’s downturn to 27 consecutive months. Firms also reduced stocks of purchases and finished goods amid muted demand conditions, the panel showed.
“The Turkish manufacturing sector took a step back in June, posting a renewed softening of production amid muted new orders. Anecdotal evidence from the survey indicated that the war in the Middle East continued to be the principal cause of the challenges facing firms,” said Andrew Harker, economics director at S&P Global Market Intelligence.
U.S. retailers are speeding up their orders from China, moving up orders by four to six weeks to secure inventories for Black Friday and Christmas holiday sales before expected tariff hikes later this year, shipping executives said.
U.S. President Donald Trump’s visit to China last month has preserved the detente between the world’s two largest powers, but uncertainty remains high.
A universal 10% U.S. tariff imposed by Washington in February, after the Supreme Court declared some earlier tariffs illegal, expires on July 24, but it is widely expected to be replaced with higher levies.
The U.S. Trade Representative has proposed a 12.5% tariff on imports from China and elsewhere following an investigation into forced labor, which Beijing denies, with a final decision expected in the coming months.
“There is an expectation that tariffs could be raised again, or restored to previous levels, so everyone is rushing to get goods in before that happens,” said Tony Meng, a China-based senior sales manager at shipping firm XPD Global.
U.S. exports expected strong in June
Usually, such orders peak in July through September, but shipping firms said volumes in May and June were higher than expected, contributing to a spike in shipping prices.
The frontloading means that the 35% growth in U.S. imports from China in May, which overshadowed April’s 11% growth and March’s contraction, could be sustained in June but may fade later in the summer.
Exports have been a key growth driver this year for China, compensating for structural weakness in domestic demand and building on a strong 2025 when the world’s second-largest economy posted a record $1.2 trillion trade surplus.
China’s top U.S. export items by value in May included smartphones, lithium-ion batteries, solid-state drives, toys, kitchenware and festival products. June data will be released on July 14.
Shipping group Maersk said in a statement to Reuters that container space has been tightening on the China-U.S. route since mid-May, due to “stronger customer demand and earlier seasonal bookings.”
A China-based shipping executive, who requested anonymity because he was not authorized to speak to the media, said back-to-school items such as stationery and apparel were part of the May-June frontloading, while early Christmas stockpiling also played a role.
He added May’s rise was also due to soccer World Cup-related orders, including jerseys, flags, souvenirs and large-screen TVs. The U.S. co-hosts the tournament with Canada and Mexico.
Shipping costs rise
Maritime consultancy Drewry’s World Container Index showed spot shipping rates from Shanghai to New York on June 25 were $7,149 per 40-foot container, 6% higher than a week before and 25% up on the year.
On the Shanghai to Los Angeles route, the cost was $5,750, 12% up on the week and 54% higher on the year.
“Importers continue frontloading shipments ahead of potential tariff changes and higher bunker-related costs,” a Drewry report said.
Outdoor furniture maker Jin Chaofeng said it would be hard to pass the entire cost of shipping fees on to customers, pointing to thin pricing power and profit margins for Chinese manufacturers in less technologically advanced sectors.
Kyle Henderson, CEO and co-founder of container-tracking software provider Vizion, warned, however, that tariffs still weigh on overall U.S. demand , which remains below its three-year average and should only be described as “normal-to-soft.”
The higher shipping costs reflect capacity management by transport firms more than surging U.S. demand, Henderson said, citing some cancelled sailings in recent weeks.
Henderson expects volumes to drop after July and into the third quarter due to a “combination of inventory already landed and a tariff environment that structurally raises the cost of China-origin goods.”
Türkiye’s foreign trade deficit narrowed 15.6% year-over-year in May, as imports fell more sharply than exports, official data showed on Tuesday.
Exports totaled $22.46 billion (TL 1.05 trillion), down 9.5% from the same month last year, while imports dropped 10.8% to $28.07 billion, according to provisional figures from the Turkish Statistical Institute (TurkStat) and the Trade Ministry.
The foreign trade gap fell to $5.61 billion in May from a year earlier.
The export-import coverage ratio rose to 80% in May, compared with 78.9% in the same month of 2025.
Excluding energy products and non-monetary gold, exports fell 11.5% to $20.5 billion, while imports dropped 16.2% to $21.03 billion. The trade deficit excluding these items stood at $525 million, while the coverage ratio was 97.5%.
Tuesday’s figures showed energy accounted for nearly one-quarter of Türkiye’s total imports in May, rising 43.4% year-over-year to $6.11 billion.
Crude oil imports increased 1.7% year-over-year to 2.67 million tons, up from 2.62 million tons in the same month last year.
This January through May, overall exports edged up 0.2% year-over-year to $111.12 billion, while imports rose 1.1% to $153.83 billion.
The foreign trade deficit rose 3.6% in the first five months of the year to $42.72 billion. The export-import coverage ratio fell to 72.2%, from 72.9% in the same period last year.
Germany was Türkiye’s top export destination in May, with shipments totaling $1.71 billion, followed by the U.S. with $1.52 billion, the U.K. with $1.38 billion, Italy with $1.14 billion and Spain with $922 million.
Russia was the leading source of imports, with $3.76 billion, followed by China with $3.43 billion, Germany with $2.04 billion, the U.S. with $1.21 billion and Italy with $1.06 billion.
Manufacturing products accounted for 94.5% of total exports in May, while intermediate goods made up 72.7% of total imports.
The share of high-technology products in manufacturing exports was 3.1% in May, while high-tech products accounted for 11.8% of manufacturing imports.
The European Union’s proposed Industrial Accelerator Act (IAA) – aiming to boost production in strategic sectors – will be decisive in the future of production and supply chain ties between Türkiye and the bloc, business leaders argued.
The flagship framework lies upon a “Made in EU” specification, requiring specific shares of member states involved in procurement, state aid, and various incentive programs.
The regulation aims to support European production, especially in clean technologies, the automotive sector, batteries, steel, chemicals and critical raw materials, to reduce its dependence on China and boost its production capacity.
The regulation could impact the bloc’s supply chain ties with Türkiye, depending on the extent to which products made in the country will be recognized within the Union origin requirements criteria or “EU content.”
Türkiye is highly integrated into Europe’s production and supply chains across many sectors due to the customs union, playing an active role in sectors ranging from automotive and machinery to steel and chemicals, with Turkish industrial products holding a massive share in the EU market.
Origin question
The draft includes an approach to evaluate production originating from Türkiye as European under certain conditions, but business leaders say this amounts more to preserving the current status quo than creating a new opportunity for Turkish firms.
The draft could potentially change amid negotiations between member states and the European Parliament (EP).
The definition of European content is limited to production carried out in member states, which could harm Turkish producers by reducing their access to certain incentives and public procurement, resulting in Turkish firms benefiting less from the bloc’s industrial incentives and creating a competitive disadvantage against European rivals.
Experts said excluding Türkiye from the Made in EU specification would increase costs for Turkish manufacturers and numerous European firms that rely on Turkish suppliers.
Auto sector
The auto sector is expected to be one of the most affected by the regulation, as Türkiye is one of Europe’s major vehicle production hubs, playing a key role in the supply chains of many global automakers.
Türkiye could secure a stronger position in Europe’s green transition and clean industry investments if kept within the framework.
Mehmet Ali Yalçındağ, chair of the Türkiye-Europe Business Council at the Foreign Economic Relations Board (DEIK), stated that Türkiye has been integral in Europe’s supply and value chains for nearly three decades with the customs union, noting that evaluation products made in the country under the Made in EU approach are significant.
He said the auto industry would be the most affected as it is not limited to vehicle production but involves multi-layered value chains like battery technologies, semiconductors, critical raw materials, software, artificial intelligence production systems and energy efficiency.
He noted that Türkiye is one of Europe’s key partners in green and digital transformation due to its strong auto supply industry, advanced supplier network, engineering capabilities, electric vehicle (EV) ecosystem and investments in low-carbon production.
“It is a strategic necessity to ensure products made in Türkiye are integrated into Europe’s industrial ecosystem without being subjected to quotas, obstacles or additional barriers, not only for the Turkish private sector but also for the EU’s industrial transformation and global competitiveness,” he said.
“Excluding Türkiye would affect Turkish firms and EU firms investing in Türkiye alike, as well as European manufacturers sourcing from Türkiye, affecting the bloc’s competitive production capacity; restricting Turkish production in strategic sectors would drive up costs, reduce the resilience of supply chains and weaken the EU industry against global competitors,” he added.
Yalçındağ urged the bloc to focus on updating the customs union and implementing common industrial policies to further existing integration instead of creating new barriers.
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