Japan's Record Intervention in Yen Misses Mark as 11.7 Trillion Fails to Halt Slide

This intervention focused around the Golden Week period. After the yen touched above 160 on April 30th, it was supported several times by authorities on May 1st, 4th, and 6th, rebounding to the 155 range. However, as the end of the month approached, the effects of the intervention gradually faded, and the yen fell to a post-intervention low of 159.65 on Thursday, closing at 159.30 in Tokyo on Friday.

The scale of the intervention is unprecedented, but the context differs from previous occasions. In 2024, Japan used 15.3 trillion yen within four days, and about 9.2 trillion yen in 2022. Although this single round of 7.3 billion USD has set a record, the absolute amount is still lower than 2024. A more critical change is that Washington has explicitly expressed support for Japan's exchange rate intervention this time. U.S. Treasury Secretary Besent stated publicly after meeting with Japanese Finance Minister Katayama Satsuki, "Excessive exchange rate fluctuations are undesirable," and expressed confidence in the monetary policy of Bank of Japan Governor Ueda Kazuo. The market generally interprets this as the U.S. pressuring the Bank of Japan to raise interest rates.

The structural factors weighing on the yen have not dissipated. Prime Minister Takashi Hayashi's inclination towards loose monetary policy, the Bank of Japan's decision to keep interest rates at 0.75% in April, and high oil prices delaying expectations of a Fed rate cut have combined to persistently suppress the yen. Bank of America foreign exchange strategist Yamada Akira pointed out that Japan's foreign exchange reserves still far exceed 1 trillion USD, and there is still room for intervention, "Japan may be able to buy time through intervention until Brent oil prices fall back."

He also noted that the long-term headwinds for the yen are gradually improving. Growth in AI-related exports, accelerated inflows of foreign direct investment, and ongoing foreign purchases of Japanese stocks all form potential support factors for the yen.

The market is now focusing on the Bank of Japan meeting on June 15th and 16th. Tokyo short-term funding data shows that the market prices the probability of a rate hike to 73%. If the Bank of Japan raises rates as expected at that time, combined with U.S. diplomatic backing, the yen's trajectory may usher in a more substantial turning point.