According to a report by Nikkei Asia on May 29th, data released by the Japanese Ministry of Finance on that day showed that from April 28th to May 27th, the Japanese government spent a record amount of 11.7 trillion yen to support its own currency. This represents the highest level of funding for such intervention measures in history. It was the largest exchange rate intervention ever carried out under the circumstances of the yens depreciation.
This data confirms the speculation by market participants that there was an intervention to sell US dollars and buy Japanese yen. This intervention is believed to have taken place around the Golden Week holiday in Japan, from late April to early May. Data previously released by the Bank of Japan indicated that the scale of the intervention on April 30 was approximately 4 trillion yen, while the intervention during the period from May 1st to 6th amounted to approximately 4.5 trillion yen.
Yen once depreciated to around 160.70 yen per US dollar on April 30th. After intervention, the yen quickly appreciated back to around 155 yen per US dollar. During Japans Golden Week holiday in May, the yen weakened further. As of May 28th, the yen had fallen to around 159.5 yen to 159.9 yen per US dollar, close to the level before the intervention.
This trend makes many foreign exchange market participants think of currency intervention measures that took place between April and May 2024. At that time, Japanese yen were bought in an amount of about 10 trillion yen at the rate of 1 US dollar per 160 yen. However, within just two months, the yen exchange rate returned to its pre-intervention levels. This time, although there is still a slight difference of around 1 yen, it seems that the situation has almost returned to its original state. The effect of this intervention was much shorter-lived compared to the previous situation.
Therefore, Japanese media also couldnt help but write articlesthe appreciation of the yen has decreased to just 1 yen in one month. What is the meaning of such massive exchange rate intervention?
Photo of U.S. Treasury Secretary Yves Beaudoin and Japanese Finance Minister Koichi Kato meeting in Tokyo.
Since the beginning of this year, the Japanese yen has been under selling pressure. Japanese Prime Minister Yoshihiko Kuroda indicated that he tends to adopt a loose monetary policy. At its policy meeting in April, the Bank of Japan also kept the policy interest rate at 0.75%.
Additionally, due to the high oil prices, market expectations suggest that the Federal Reserve will delay its interest rate cuts. This expectation has further exacerbated the selling pressure on the Japanese yen.
As of the end of May, the yen exchange rate has declined. As of the close of trading in Tokyo on May 29, the yen exchange rate against the US dollar was reported at 159.30. Although investors remain cautious about the possibility of further intervention by the Japanese government, high oil prices and concerns over deteriorating trade conditions continue to put downward pressure on the value of the yen.
Bank of Americas foreign exchange and interest rate strategist in Japan, Shusuke Yamada, wrote in a research report last week: Although Japan may have already used approximately 10 trillion yen of funds, its foreign exchange reserves are still expected to remain above $1 trillion. Japan may be able to use foreign exchange interventions to gain time until the price of Brent crude oil drops.
He believes that various factors that have long suppressed the Japanese yen are gradually easing. These factors include the significant interest rate gap between Japan and other economies, as well as the continuous outflow of Japanese capital overseas. He listed several positive factors, such as Japans export growth related to artificial intelligence, increased foreign direct investment inflows, and the influx of foreign investors into the Japanese stock market.
US Dollar/Yen Exchange Rate Situation as of June 1st
According to Nikkei Asia, the last time the Japanese government intervened by buying yen was in 2024, with a total intervention amount of 15.3 trillion yen. In 2022, Japan also carried out similar interventions, with an amount of approximately 9.2 trillion yen.
Compared to previous rounds of intervention efforts, one key difference this time is that the United States has provided more explicit support for Japans efforts to stabilize the yen exchange rate.
Japanese Finance Minister Katsumi Baisho revealed last month that after her meeting with U.S. Treasury Secretary Timothy Geithner in Tokyo, she had received full understanding from him. She reiterated that both sides will maintain coordination regarding policies related to financial markets.
In January this year, the U.S. Treasury Department took measures known as rate checks to provide assistance to the continuously declining Japanese yen. This action was seen as a signal that Japan was preparing to intervene in the situation.
I firmly believe that President Ueda will be able to successfully manage Japans monetary policy. At the same time, I am also convinced that Japans economic fundamentals remain strong. Excessive fluctuations in the foreign exchange market are something we certainly do not wish to see. After his meeting with Bank of Japan Governor Ueda on May 19th, Besent wrote this statement on the social platform X.
This statement has been widely interpreted by the public as indicating that Besennet is urging the Bank of Japan to take action to raise interest rates. According to data from the money market brokerage firm Tokyo Tanshi, as of Friday, the market had estimated that the probability of the Bank of Japan raising interest rates at its next policy meeting, scheduled for June 15-16, was 73%.
