Japan Spent Record $62 Billion to Support the Yen Last Month

In a determined but ultimately unsuccessful attempt to stabilize its weakening currency, Japan’s authorities spent a record 9.79 trillion yen ($62.23 billion) between April 26 and May 29. 

This significant intervention in the foreign exchange market aimed to prop up the yen, which had been falling precipitously. 

Despite this substantial expenditure, the efforts failed to make a lasting impact, and the yen continues to hover near crucial lows.

The recent intervention surpassed Japan’s previous record of 9.1 trillion yen, which was spent over three days between September and October 2022. 

Daisaku Ueno, chief FX strategist at Mitsubishi UFJ Morgan Stanley Securities, noted that this larger-than-expected intervention underscores Japan's determination to mitigate the effects of imported inflation. 

He also indicated that authorities might continue to make substantial interventions in the future.

Data released by Japan’s Ministry of Finance on Friday confirmed that Tokyo engaged in two massive rounds of dollar-selling shortly after the yen hit a 34-year low of 160.245 per dollar on April 29 and again on May 2. 

However, the detailed daily breakdown of these interventions will only be available in the April-June quarter data, set to be released in early August.

Despite the billions spent, Japan’s efforts have not yielded a sustained improvement in the yen’s value. 

The currency’s persistent weakness is largely attributed to the resilience of the US economy and the corresponding delay in Federal Reserve rate cuts. 

Concurrently, the Bank of Japan (BOJ) is expected to proceed cautiously in raising interest rates this year, contributing to the yen's ongoing challenges.

Market analysts are now closely watching for any indications of further intervention by Japan. 

The yen remains near the critical 160 threshold, which is perceived as the authorities' intervention limit. 

As of Friday’s close, the yen was trading at 157.26 per dollar, following a fresh warning from Finance Minister Shunichi Suzuki about potential intervention.

Japanese officials have been circumspect about their market activities, though they consistently affirm their readiness to act against excessive volatility. 

Top currency diplomat Masato Kanda reiterated last week that authorities are prepared to take action at any moment to curb extreme yen movements. 

Kanda, who led the substantial yen-buying operations in late 2022, emphasized the government's vigilance in monitoring currency markets.

While Japan has had limited success in curbing sharp yen fluctuations, there is a possibility of further intervention even if the yen does not breach the 160-to-the-dollar mark. 

According to Masafumi Yamamoto, chief FX strategist at Mizuho Securities, the authorities might act again if the yen experiences sharp single-day movements, potentially intervening if the currency moves to around 158 yen or beyond.

In conclusion, Japan's record expenditure to support the yen highlights the country’s ongoing struggle with its currency's depreciation. 

As economic conditions and monetary policies evolve globally, Japan remains vigilant, prepared to undertake significant measures to stabilize its currency and mitigate economic impacts.