The Japanese government spent a total of 5.53 trillion yen ($36.8 billion) in foreign exchange market interventions this month to strengthen the yen, which had reached 38-year lows. This intervention was confirmed by the Ministry of Finance on Wednesday, although the data provided only covers the period from June 27 to July 29. The intervention occurred when the dollar was already weakening due to a surprisingly weak U.S. consumer inflation print. However, analysts believe that other factors, such as statements from Republican presidential candidate Donald Trump advocating for a weaker currency and calls from Japanese politicians for near-term Bank of Japan interest rate hikes to curb yen weakness, also contributed to the yen’s surge. The Bank of Japan (BOJ) raised interest rates earlier on the same day and held a hawkish news conference, which further pushed the dollar down to the cusp of 150 yen.
Shoki Omori, chief Japan desk strategist at Mizuho Securities, stated that while the intervention had an impact, the yen would likely have returned to around 160 if it weren’t for the statements made by Trump and other politicians. Despite rising expectations for further BOJ policy normalization, Omori expects the yen to weaken again over the course of August. This is because a mere 25 basis point rate hike does not necessarily diminish the attractiveness of carry trades, a practice where market players borrow yen at Japan’s near-zero interest rates and invest it in higher yielding assets overseas.
Japanese authorities have a history of refraining from confirming intervention while consistently warning that they stand ready to act at any time to counter one-sided, speculative currency moves. As of the end of June, Japan’s foreign reserves stood at a substantial $1.23 trillion. A weak yen is unpopular with the public and could be a significant factor in ruling party leadership elections in September.
However, further intervention would take place under new leadership, as Masato Kanda’s term as Japan’s top currency diplomat ended on Tuesday. Atsushi Mimura, a financial regulation expert, took over as vice finance minister for international affairs, stating that intervention remains on the table.
