Japan’s Stealth Currency Gamble: Billions Spent, Yen Rebounds

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Japan’s Currency Intervention: Boosting the Yen Amidst Market Turmoil

In a strategic move to bolster its currency, Japan has intervened in the foreign exchange market for the first time since 2022. This intervention was prompted by the yen’s plunge to a 34-year low against the U.S. dollar in April.

A Steep Decline and a Swift Rebound

As the yen plummeted, dipping below the 160 mark against the dollar, a sense of alarm spread through Japanese financial circles. However, the yen has since shown resilience, bouncing back to more stable levels in recent weeks. This recovery coincided with the government’s intervention, which saw the Ministry of Finance spending a staggering 9.7885 trillion yen (approximately .25 billion) between April 26 and May 29.

Intervention After Months of Pressure

This latest intervention marks the Japanese government’s first such action since October 2022. It comes at a time when the yen has been facing sustained depreciation, attributed to the Bank of Japan’s decision to end its negative interest rate policy in March.

A Strategic Rebound to Stabilize Markets

The intervention aims to smooth out excessive currency movements that threaten to impact households and businesses. In May, Finance Minister Shunichi Suzuki expressed support for intervention if market fluctuations became excessive, though he declined to confirm any actions at the time.

New Japanese 1000 Yen banknote on display inside the Currency Museum of the Bank of Japan's Institute for Monetary and Economic Studies. The new banknotes will start circulate from July 3, 2024.

New Japanese 1000 Yen banknote on display.
Source: Sopa Images | Lightrocket | Getty Images

Past Interventions and the Goal of Stability

Japan’s previous intervention in October 2022 saw authorities step in to support the yen as it fell below 152 against the dollar. The government intervened three times that year, reportedly spending a total of around 9.2 trillion yen.

The yen’s recent weakness has raised concerns about its impact on inflation and economic growth. The intervention is a clear indication that the Japanese government is committed to stabilizing the currency and mitigating its potential negative effects on the economy.

Data sourced from: cnbc.com