In the foreign exchange market, the Japanese yen has once again approached the level of 160 yen per US dollar. During the Golden Week holiday period, the Japanese government implemented market intervention measures, conducting yen-buying operations on a massive scale of 11 trillion yen. However, over the past month, the yen's exchange rate against the dollar has risen by only 1 yen. What is the significance of this large-scale intervention?
The Ministry of Finance announced on May 29 that the total amount of foreign exchange intervention conducted by the government and the Bank of Japan (the central bank) from April 28 to May 27 was 11.7349 trillion yen. This marks the largest-scale foreign exchange intervention ever taken by Japanese authorities during a period of yen depreciation.
On April 30, the yen's exchange rate against the dollar once fell to 160.70 yen per US dollar. Subsequently, influenced by the intervention measures, the rate rebounded to the range of 155 yen per dollar. It is believed that the authorities intermittently intervened in the market during the Golden Week holiday. However, the yen's exchange rate has since declined again. On May 28, it fell to the latter half of the 159 yen per dollar range, nearing the level before the intervention was implemented.
The current depreciation trend of the yen is more constrained by fundamental factors, such as elevated crude oil prices influenced by the Middle East situation. With the uncertain direction of the Middle Eastern situation and market speculation that the US Federal Reserve may raise interest rates, pressure to buy dollars has increased, leaving the yen exchange rate in a vulnerable position.
The Japanese government's adherence to active fiscal policies and the unclear outlook for sustained interest rate hikes by the Bank of Japan also contribute to downward pressure on the yen's exchange rate. Koji Fukaya of Market Risk Advisory stated, "In the absence of coordination with fiscal and monetary policies, foreign exchange intervention measures are difficult to be effective."
Some market participants believe, "If the government had not taken intervention measures, the yen's depreciation would have been faster than the current pace." According to a monthly survey conducted by Nikkei Quick in May among foreign exchange market participants, over 70% of respondents indicated that the government's intervention was "necessary" or "somewhat necessary."
Yujiro Goto, Chief FX Strategist at Nomura Securities, noted that this market intervention "has the significance of curbing one-sided yen depreciation." During the Golden Week holiday, market trading was relatively thin, prices were prone to volatility, and there was a risk of a sharp yen depreciation.
What results can this intervention achieve? Atsushi Takeuchi, Director of the Ricoh Institute of Social Economy and former head of the Foreign Exchange Division at the Bank of Japan responsible for executing market intervention measures, pointed out, "During the time bought through intervention, it is crucial to reverse the market's existing expectations of a weak yen trend."
Will the Japanese government intervene in the market again in the future?
Before the government's intervention measures, Finance Minister Shunichi Suzuki and Vice Finance Minister for International Affairs Masato Kanda repeatedly issued "verbal warnings." However, since the Golden Week holiday, their active remarks have been relatively rare. An increasing number of market participants speculate that the authorities might deliberately induce speculative yen selling this time, quietly waiting for the yen to break through the 160 yen per dollar level before unexpectedly implementing market intervention.
"Among retail investors, expectations for the authorities to implement a 'second round' of market intervention are growing," revealed Takuya Kanda, a researcher specializing in foreign exchange margin trading (FX) at the Foreign Exchange Online Research Institute. Currently, FX retail traders, anticipating additional intervention, have established long positions of "buying yen and selling dollars," accounting for about 60% of all trading activity.
To wage a currency defense war, it is necessary to substantially strengthen Japan's national economic structure. Only by implementing policies sufficiently persuasive in the market can the persistent issue of yen depreciation be fundamentally resolved.
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