The yen weakened on December 26 in light trading as investors stayed alert to intervention risk, after Japanese officials warned they would take “appropriate” action against excessive foreign‑exchange moves. The immediate story is currency volatility; the deeper story is credibility.

Intervention threats work by changing incentives. Traders can tolerate drift, but they avoid one‑way bets if they believe officials will step in abruptly. That dynamic is strongest in thin markets, where a sudden move can trigger forced exits.

The yen matters beyond Japan. It shapes global carry trades, influences risk appetite, and affects import prices that feed domestic inflation debates. Tokyo inflation data and the Bank of Japan’s messaging interact directly with currency expectations.

The policy challenge is that intervention can buy time but rarely changes fundamentals. Markets are testing where Japan draws the line between volatility management and a broader policy stance.

In other words, the market is asking whether Tokyo can steady expectations without turning FX policy into a weekly headline.