Fresh evidence has emerged suggesting Japanese authorities may have stepped into currency markets again on Tuesday, with central bank data pointing to an intervention worth up to 8.45 trillion yen ($52.8 billion). The move would mark another major salvo in Tokyo's battle to support a struggling yen.
According to Bloomberg analysis of Bank of Japan account data, the government likely bought yen and sold US dollars on July 30. During early US trading that day, the dollar-yen pair plunged nearly 500 points in less than an hour, breaking below the 158 threshold and recording a 3.3% daily drop -- the sharpest single-day decline since December 2023.
While Japanese officials have not confirmed the action, market conviction is building. Finance Minister Katsunobu Kato declined to comment, and Vice Finance Minister Atsushi Mimura said he had "nothing to say." However, Mimura noted that Japan has secured support from the United States that goes "beyond mere moral backing," fueling speculation of coordinated action between the two nations.
The yen initially rallied again on July 31 but later gave back gains, with dollar-yen hovering near 160 at the time of writing. Bank of Japan Governor Kazuo Ueda struck a hawkish tone during the day, briefly pushing the pair down to 158.63 before it weakened back toward the 160 level.
The market turmoil erupted during the New York session on July 30. Within about 50 minutes from 9:30 a.m. local time, dollar-yen collapsed from around 162.5 to below 158, producing a pattern highly reminiscent of previous Japanese interventions. Based on BOJ data and broker estimates, authorities may have deployed roughly 8.45 trillion yen to prop up the currency.
Nikkei reported that the BOJ and other government agencies executed large-scale yen buying during New York trading, while US authorities also conducted exchange rate inquiries. Typically, the US Treasury asks the New York Fed to request quotes from banks to assess market conditions or coordinate with allies. The Treasury has not yet responded.
US Treasury Secretary Scott Bessent said in an interview that the yen "looks severely undervalued" and that "the market will probably realize the yen should be stronger." Markets interpreted this as tacit US support for Japan's currency stance.
Geoffrey Yu, senior strategist at BNY Mellon, said the magnitude of the move "strongly suggests the Japanese government likely intervened," but cautioned that the ultimate effect depends on market reaction going forward.
This suspected action would mark another chapter in Japan's intensifying campaign to defend the yen. Ministry of Finance data shows that between April 28 and May 27, Japan spent a record 11.73 trillion yen ($73.2 billion) on intervention, primarily by selling foreign reserves including US Treasuries.
However, previous efforts failed to reverse the yen's weakness. With the US-Japan interest rate differential remaining wide, carry trades have stayed active, putting renewed pressure on the currency. On July 23, dollar-yen hit 163.99, its highest level in roughly 39 years and eight months. Analysts note that without a clear shift in BOJ monetary policy, intervention alone is unlikely to change the yen's long-term trajectory.
The BOJ kept its policy rate unchanged at 1% at its July 31 meeting, as widely expected. Governor Ueda struck a hawkish note in his press conference, repeatedly highlighting upside risks to inflation and stating that underlying inflation is already close to the 2% target. He suggested the BOJ could accelerate rate hikes if financial conditions become too loose, and noted that the yen's impact on inflation is growing, requiring closer attention to currency-driven price pressures.
Yet because the meeting did not deliver a clear signal of earlier tightening, market reaction was muted. Dollar-yen rebounded after a brief dip. Markets currently expect the next rate hike as early as October, though this remains contingent on future inflation, wage growth, and currency moves.
Analysts believe intervention can alter short-term trends but cannot eliminate the core factors weighing on the yen. Bloomberg data shows that the 90-day rolling correlation between dollar-yen and the US-Japan two-year overnight index swap spread has risen from about 0.25 in March to 0.44, indicating that the interest rate gap is playing a growing role in driving exchange rates.
As long as the US-Japan yield differential remains wide, carry trades are likely to continue supporting dollar-yen. Citi analysts said the recent sharp drop in dollar-yen "is consistent with the pattern seen during previous interventions," but because Ueda's policy stance did not significantly exceed market expectations, further yen appreciation may face headwinds.
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