Japan's Last Month Intervention: $62B Revealed

Japan's expenditure on two currency market interventions this year has already exceeded the spending on three interventions last year, potentially suggesting that Japan's ability to defend the yen is gradually weakening.

After the yen's exchange rate against the US dollar fell to a 34-year low, Japan has spent a record 9.8 trillion yen (approximately $62.2 billion) over the past month to support the yen, surpassing the amount it spent in 2022 to defend the currency.

The Ministry of Finance released data for the period from April 26 to May 29 on Friday.

Based on the accounts of the Bank of Japan and predictions from currency brokers, this amount exceeds the earlier estimated 9.4 trillion yen and also surpasses the 9.2 trillion yen used for all intervention measures in 2022.

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More details on how the central bank implemented the interventions may emerge when the Japanese government publishes classified foreign exchange reserve data next week, as well as routine operation data including the summer months of April and May.

Japan's previous monthly intervention cost record was 9.1 trillion yen, set in the fall of 2011 when authorities attempted to lower the yen's exchange rate.

This record expenditure on currency market interventions indicates the Japanese government's determination to combat speculators shorting the yen. The substantial funds also highlight the scale of action required to have even a temporary impact on the market.

The monthly data does not show the number of times Japan intervened in the currency market, but data from a month ago suggests that Japanese authorities have entered the market twice.

This would mean that Japan's expenditure on two currency market interventions in 2024 has already exceeded the spending on three interventions in 2022, reflecting a gradual weakening of Japan's ability to defend the yen.

Chief foreign exchange strategist at Sumitomo Mitsui Banking Corporation, Hirofumi Suzuki, stated, "The scale feels a bit large, but it is essentially within the expected range.""It did not exceed 10 trillion yen, so it does not feel too large, and the US dollar exchange rate against the yen also did not have much reaction."

Given the huge gap between interest rates in Japan and the United States, the yen is expected to continue to be under pressure.

Although the Bank of Japan eventually joined the Federal Reserve in tightening monetary policy, Japan's short-term interest rates are still only 0.1%, while the Federal Reserve's interest rates are 5.5%.

Unless there are clearer signs indicating when US interest rates will start to decline, or the Bank of Japan will more actively increase borrowing costs or reduce bond purchases, the possibility of a situation reversal is extremely slim.