TOKYO - The Japanese government and the Bank of Japan are believed to have conducted yen-buying intervention since the end of last month in an effort to slow the currency’s decline, though the broader trend of yen weakness has shown little sign of reversing.
Foreign exchange intervention is used by monetary authorities to curb excessive volatility in currency markets by buying or selling currencies directly. In Japan’s case, authorities buy yen and sell dollars when the yen falls rapidly against the U.S. currency.
The Ministry of Finance determines the timing and scale of intervention, while the Bank of Japan carries out the operations using funds from the Foreign Exchange Fund Special Account through transactions with private financial institutions.
Officials view intervention as a tool to counter speculative market movements and prevent exchange rates from moving sharply in one direction, particularly when negative sentiment toward Japan accelerates the yen’s decline.
At the same time, Japan faces limitations under the international framework governing currency markets. G7 nations broadly support market-determined exchange rates and discourage competitive currency devaluation policies designed to boost exports.
Japanese authorities maintain that the recent intervention is aimed at slowing excessive market volatility rather than artificially weakening or strengthening the currency for trade advantages.
The latest intervention is believed to have been conducted independently by Japan, although coordinated action involving multiple countries is generally considered more effective in influencing currency markets.
Attention has also focused on the United States following reports of a rate check earlier this year and recent statements emphasizing close financial coordination between Tokyo and Washington.
Because yen-buying intervention involves selling dollars, analysts say support or understanding from the U.S. government is considered important, even if not formally required.
Market observers have also pointed to concerns in Washington over the simultaneous rise in Japanese government bond yields alongside the yen’s depreciation.
Unlike yen-selling intervention, which can theoretically be financed through unlimited yen issuance, yen-buying intervention depends on Japan’s foreign currency reserves because authorities must sell dollar assets to purchase yen.
Japan currently holds nearly 1.4 trillion dollars in foreign exchange reserves, giving authorities significant capacity to continue intervening if necessary, although analysts caution that even large-scale intervention may have limited long-term impact if underlying interest rate differences between Japan and the United States remain unchanged.
Source: テレ東BIZ
