The yen experienced a significant surge against the dollar on Monday, triggered by reported yen-buying intervention by Japanese authorities. This intervention comes at a time when the yen has been languishing at levels not seen in over three decades. The dollar dropped to a low of 154.40 yen from a high of 160.245 earlier in the day, with Japanese banks reportedly selling dollars for yen. The U.S. currency was trading at 156.27 yen at 2127 GMT, down more than 1% from the end of last week.
The Wall Street Journal reported that Japanese financial authorities had intervened in the market, citing sources familiar with the matter. This intervention follows weeks of speculation among traders about potential action from Tokyo to support the yen, which has lost around 11% against the dollar so far this year.
The recent volatility in the currency markets came after the Bank of Japan (BOJ) decided to stick to its guidance on buying government bonds last week, disappointing some traders who had hoped for a tapering of purchases to slow the yen’s decline. The thin trading conditions in Asia on Monday, due to Japan’s Golden Week holiday, likely exacerbated the currency movements.
The intervention by Japanese authorities underscores the challenges they face in managing the yen’s exchange rate. A weaker yen is beneficial for Japanese exporters but poses challenges for policymakers as it increases import costs and inflationary pressures. The BOJ, while not mandated to manage the currency, must navigate carefully to achieve sustainable inflation without destabilizing the economy.
The suspected intervention also comes ahead of the Federal Reserve’s policy review, with expectations for Fed rate cuts being pushed back as U.S. inflation remains elevated. A combination of BOJ policy changes and MOF interventions may be more effective in stabilizing the yen than interventions alone. Japan’s previous interventions in 2022, when the yen slid towards 152 to the dollar, were estimated to have cost around $60 billion.
While interventions may temporarily reverse price action, the long-term fate of the yen will likely be influenced by global macroeconomic forces. Lower U.S. rates or a hawkish BOJ could meaningfully alter the yen’s trajectory in the future.