Japan's government conducted foreign exchange interventions of a record scale over the past month, but the yen has largely given back all its gains, intensifying market skepticism about the effectiveness of unilateral action.
According to data released by Japan's Ministry of Finance on Friday, authorities spent approximately 11.73 trillion yen (about $73.6 billion) buying yen between April 28 and May 27. This action aimed to support the domestic currency, which had approached the level of 160 yen per US dollar. This marks one of the largest single-month foreign exchange interventions on record for Japan and the first market intervention since 2024.
The scale of the intervention exceeded market expectations. Previous reports, based on calculations from central bank fund flow data, estimated the total expenditure for two rounds of intervention at about 10.08 trillion yen. The officially announced figure is significantly higher than this estimate. As of Friday evening, the USD/JPY rate stood at 159.27, nearly identical to the 160.72 level seen just before the intervention on April 30, casting doubt on its effectiveness.
The larger-than-expected intervention scale suggests the possibility of multiple rounds of covert operations. The actual intervention size disclosed by the Ministry of Finance, being higher than anticipated, has sparked speculation about the specific number and timing of operations.
Rinto Maruyama, a senior foreign exchange and interest rate strategist at SMBC Nikko Securities, stated, "This raises the possibility that authorities conducted covert interventions within the 158.50 to 159.50 yen range." He further noted that the market might interpret this as a sign that even with covert intervention, it failed to effectively halt the yen's depreciation, potentially reinforcing the view on the limitations of unilateral action.
According to sources, there was indeed a yen-buying intervention on April 30, with speculation of further action in the following days. Notably, this intervention occurred just two days after the Bank of Japan announced on April 28 that it would maintain its current policy, a situation highly similar to that of April 2024—when the central bank's decision to stand pat at the month's end also triggered yen weakness and subsequent government market intervention.
The fundamental pressure on the yen stems from the wide interest rate differential between the US and Japan, coupled with inflation concerns fueled by Middle East conflicts. The Bank of Japan is scheduled to announce its next policy decision on June 16, with widespread market expectations for a 25-basis-point rate hike, which could help narrow the interest rate gap.
However, the policy path of the US Federal Reserve has made markets cautious about expectations for a narrowing rate differential. A resurgence in global inflation has dampened market bets on Fed rate cuts within the year, with several officials warning of upside inflation risks. In its meeting last month, most Fed officials cautioned that if inflation persists above target, the central bank might need to consider raising interest rates.
Despite the record-breaking scale of this intervention, market participants remain skeptical of its actual impact. Bart Wakabayashi, head of State Street Bank's Tokyo branch, stated, "It did have an impact at the time, but I don't think they succeeded in changing the market's overall expectations." He also anticipates the possibility of further intervention in the future, adding, "If the market easily breaks through 160, I think the authorities will step in again."
This record intervention underscores the Japanese authorities' determination to prevent further yen depreciation. Yet, against a backdrop where the divergence in US and Japanese monetary policies is unlikely to reverse in the short term, the sustained effectiveness of unilateral intervention faces a severe test.
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