Japan appears to have intervened in the currency markets for the third time this year, shortly after US inflation data was released on Thursday. According to analysis from Bloomberg, the intervention was estimated to be around ¥3.5 trillion (approximately US$22 billion or RM102.8 billion), based on comparisons of central bank accounts and forecasts from money brokers.
This intervention aimed to take advantage of expectations that the Federal Reserve might cut interest rates, following data showing a broad cooling of US inflation. It marks a shift in Japan’s strategy, as it typically intervenes to weaken the yen but acted this time to bolster it when it strengthened against the dollar.
Finance Minister Shunichi Suzuki and top currency chief Masato Kanda declined to comment on whether Japan intervened, similar to their responses after previous interventions earlier in the year. Local media reports suggested authorities had indeed intervened, citing unnamed officials.
The yen saw sharp movements shortly after the US inflation data release, strengthening from around 161.58 to 157.44 against the dollar within half an hour. Market watchers had anticipated intervention if US inflation had surged, potentially causing the yen to weaken. However, the move to intervene to strengthen the yen was unexpected.
As of Friday evening in Tokyo, the yen was trading around 159.09 against the dollar, having depreciated over 11% this year, making it the worst performer among major currencies.
The estimated intervention size was deduced from changes in the central bank’s accounts. The Bank of Japan reported that its current account balance would decrease by ¥3.2 trillion due to fiscal factors, compared to an average forecast increase of ¥333 billion among private money brokers before the suspected intervention.
Analysts suggest this intervention was successful in boosting the yen, costing less than previous interventions which totaled ¥4 trillion in May. The government’s record intervention of ¥9.8 trillion earlier this year aimed to support the yen when it hit a 34-year low against the dollar.
Japan’s government faces challenges in stabilizing the foreign exchange market amid persistent inflation and economic pressures. Differences in interest rates between the US and Japan, especially in long-term debt yields, contribute significantly to yen weakness.
The Bank of Japan maintains it does not target the yen directly but could adjust policies if yen weakness impacts inflation forecasts. The impact of this latest intervention on the central bank’s upcoming policy decision remains uncertain, with economists divided on whether it could influence a potential rate hike or cut.
Official monthly intervention data is expected on July 31, coinciding with the departure of currency chief Masato Kanda and the appointment of Atsushi Mimura as his successor in a routine bureaucratic reshuffle.”
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