Japanese yen weakness persists despite $62bn intervention

Tokyo spends $62 billion Japanese yen to prop up the currency, as per MoF data

Japanese authorities spent 9.79 trillion yen ($62.23 billion) over the past month intervening in the foreign exchange market to support the yen, according to data released by the Ministry of Finance on Friday.

These interventions prevented the Japanese yen from hitting new lows, but are “unlikely to reverse longer-term declines”, as per Reuters correspondent Tetsushi Kajimoto.

Daisaku Ueno, chief FX strategist at Mitsubishi UFJ Morgan Stanley Securities, commented on the Japanese yen dynamics to Reuters, saying that Tokyo will likely continue spending in its attempts to prop up the currency:

“This was larger than expected, underscoring Japan's resolve to ease the pain of imported inflation. Authorities will likely continue to spend big on intervention”.

The Ministry of Finance data confirmed that Tokyo intervened twice with substantial dollar-selling after the Japanese yen hit a 34-year low of 160.245 per dollar on April 29 and again in the early hours of May 2. Despite the significant use of foreign reserves, the Japanese yen's recovery has been limited, and market attention is now on whether Tokyo will step in again as the yen hovers near the 160 threshold, seen as a critical level for intervention.

As of 1020 GMT on Friday, the yen traded at 157.235 per dollar.

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Interest rate differentials between Fed and BoJ still key for Japanese yen decline

Finance Minister Shunichi Suzuki issued a fresh yen intervention warning on Friday, saying that officials are monitoring the currency markets closely and are prepared to take necessary measures to counter excessive volatility.

Authorities have not confirmed any market interventions but have consistently warned of their readiness to act against excessive currency movements.

The released data only shows the total amount spent on intervention in the past month, with a detailed daily breakdown expected in early August for the April-June quarter.

The Japanese yen's struggles are largely attributed to the strong U.S. economy and the resulting delay in Federal Reserve rate cuts, while the Bank of Japan (BOJ) is expected to be slow in raising interest rates this year.

Japan renewed its efforts to counter the yen's decline during a recent Group of Seven (G7) financial leaders' meeting, where the group warned against excessive currency volatility.

Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, agreed with Mitshubishi UFJ’s Daisaku Ueno in his own comment to Reuters, opining that Tokyo will likely continue spending to support the yen:

"Given that there was no opposition from other countries, Japan will likely continue efforts to curb excessive yen falls through intervention”.

However, U.S. Treasury Secretary Janet Yellen said last week that intervention should be limited to "exceptional" cases, underscoring her belief in market-determined exchange rates.

Mizuho analyst says there is strong possibility of yen intervention past the 160 mark

Top currency diplomat Masato Kanda said last week that authorities are prepared to take action at "any time" to counter excessive yen movements.

Kanda, who led yen-buying operations in September and October 2022, spent about 9.2 trillion yen over three days to support the currency.

While Japan has had limited success in stabilizing the yen, there is a strong possibility of further intervention even if the currency does not breach the 160-to-the-dollar mark, according to Masafumi Yamamoto, chief FX strategist at Mizuho Securities.

"Japan must have won backing from G7 including the U.S. to intervene in the currency market again. If the yen makes sharp single-day moves from the current level to say, 158 yen or beyond, it might take action again."

At the time of writing on Friday, USD to JPY traded at 157.19, with the greenback up 0.23% against the yen on the day. The EUR to JPY currency pair stood at 170.59, with the euro gaining 0.42% on the Japanese yen.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.