The USD/JPY pair experienced a sudden flash crash after rising to near 158, coinciding with the time window of Japan's past intervention activities. However, with fundamental headwinds exerting downward pressure, the effectiveness of recent interventions is continuously diminishing, significantly increasing the difficulty for authorities to support the currency.
During Wednesday's Asian trading session, the Japanese Yen strengthened significantly against the U.S. Dollar, with gains reaching up to 1.8%. It climbed to a high near the 155 level, rebounding nearly 300 pips from the day's low, resuming the upward momentum seen after the Japanese government's market intervention on April 30. Concurrently, the U.S. Dollar Index fell below the 98 mark, declining 0.5% on the day.
Boosted by the weakening U.S. Dollar, other major currencies saw collective short-term gains. The NZD/USD pair expanded its intraday increase to 1%, while both GBP/USD and EUR/USD rose more than 0.3%. USD/CHF dropped to touch 0.78, down 0.40% for the day.
The sharp decline in USD/JPY is suspected to be another intervention by Japanese authorities. Justin Low, an analyst at investinglive, noted that the timing seems consistent with previous patterns—today is a Japanese market holiday, and the prior two intervention attempts also occurred during the window between Asian trading and the opening of European markets.
Despite this, Low pointed out that the previous interventions happened closer to the moment when USD/JPY had just broken above 157. This time, however, the pair climbed all the way to near 158 before the suspected intervention occurred. Despite multiple attempts by Japan's Ministry of Finance, the effectiveness of intervention actions since last week has been waning, particularly as fundamental factors continue to overwhelmingly work against the Yen.
Low believes the question now is how much money Japanese authorities are willing to spend to make the intervention truly effective. Given the current broader economic backdrop, this presents a very challenging problem. The greatest hope for Japanese officials currently is that U.S.-Iran tensions will ease, thereby alleviating pressure on the Japanese economy. Otherwise, they will continue fighting against a powerful tide, attempting to persuade traders not to persistently sell the Yen.
The Japanese government is understood to have conducted its first foreign exchange market intervention since 2024 on April 30, driving a 3% surge in the Yen that day. Although Japanese officials have not directly acknowledged the intervention, informed sources confirmed the operation. Analysis of Bank of Japan accounts also indicated the intervention scale was approximately $34.5 billion.
Rodrigo Catril, a strategist at National Australia Bank, stated, "The rapid decline in USD/JPY completely fits the characteristics of intervention. Recent movements confirm that Japan's Ministry of Finance is determined to prevent the Yen from depreciating to around 160 and to打击 speculative short-selling of the Yen."
Japan's Ministry of Finance did not respond to requests for comment during the holiday non-working hours. However, Japanese Finance Minister Sakuchi Katsurayama stated clearly on Monday that the government's stance on currency market intervention is clear and firm.
Analysts at Goldman Sachs pointed out that based on the scale of the late April intervention, Japan's existing reserves could support 30 operations of similar magnitude. However, they expect officials to conserve their ammunition cautiously and choose more effective timing for action.
A Japanese Ministry of Finance official earlier this week indicated that, according to International Monetary Fund (IMF) guidelines, if Japan wishes to maintain its freely floating exchange rate status, it can only conduct two more three-day intervention operations by November.
David Forrester, Senior FX Strategist at Credit Agricole CIB in Singapore, said reports about the IMF guidelines "have emboldened investors, pushing the USD/JPY rate higher again." This "gives the Ministry of Finance and the Bank of Japan an opportunity to intervene again to defend the key 157 level, which appears to be forming a new defensive line."
Historical data shows that in 2024, the Yen depreciated against the Dollar to 160.17. Japanese authorities intervened multiple times that year to buy Yen, with total spending around $100 billion. The intervention points were at 157.99, 161.76, and 159.45, respectively. Currently, the Japanese government's determination and capability to stabilize the exchange rate remain strong and will continue to deter short sellers.
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