According to guidelines from the International Monetary Fund (IMF), Japan can only conduct two more three-day interventions before November if it wishes to maintain its free-floating exchange rate regime. A Japanese Ministry of Finance official noted on Monday that three consecutive days of intervention would be considered a single market operation. This follows reports that Japanese authorities intervened last Thursday, causing a sharp rise in the yen and subsequent intraday rebounds in the following trading sessions.
The official stated that, under IMF rules, a maximum of three currency interventions within a six-month period is consistent with a free-floating exchange rate system. Exceeding this limit would likely lead the IMF to classify the regime as a managed float rather than a free float.
Despite this, market participants widely believe the yen will resume its weakening trend, regardless of official intervention. The conflict in Iran negatively impacts Japan's energy-import-dependent economy, while the persistent wide interest rate differential with the United States continues to undermine market confidence, collectively keeping pressure on the yen.
Data indicates that options traders still see approximately a 52% probability of the yen depreciating to 160 per US dollar by the end of June. Regarding potential further intervention, Abbas Keshvani, Head of Asia Macro Strategy at RBC Capital Markets in Singapore, commented, "Will they use it? Yes, especially if the spot rate approaches the 160 level. Will it be effective? They might contain the spot rate in the short term, but beyond that, the fundamental factors for a weak yen remain."
During Asian trading on Monday, the yen initially rose 0.8% before paring gains, sparking speculation in trading rooms about whether Japanese officials had intervened again to support the currency. This occurred after the yen had weakened past 160 per dollar, with the government potentially using around 5.4 trillion yen (approximately $34.3 billion) last week to prop up the yen. As of Tuesday's latest data, the yen showed little change, trading at 157.24 per US dollar.
Analysts point out that the key question is whether authorities will be compelled to act again, though the threshold for intervention appears higher in an environment dominated by geopolitical drivers like conflict. Joey Chew, Head of Asia FX Research at HSBC Holdings, noted, "Japan has substantial foreign exchange reserves," giving it the capacity to intervene. "The key is the effectiveness of intervention—whether the timing is right, especially with oil prices continuing to rise."
Japanese Finance Minister Shunichi Suzuki stated on Monday that, under Japan-US agreements, authorities can take decisive action against speculative currency movements. An official added that intervention is possible even on Japanese public holidays, as long as global markets are open.
Some market professionals are considering the implications if Japan decides to conduct more than the three operations allowed under IMF guidelines. Rodrigo Catril, a strategist at National Australia Bank in Sydney, said, "We are a long way from that, but history shows the IMF finds it difficult to enforce currency rules strictly. Unless there are substantive changes, such as Japan's ultra-loose fiscal policy, future FX interventions by Japan should be anticipated."
Damien Loh, Chief Investment Officer at Ericsenz Capital in Singapore, concluded, "If the Bank of Japan does not raise interest rates at a pace commensurate with inflation, the yen will only weaken."
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