TOKYO-Japan spent $98.7 billion to prop up the yen in the past month in a joint action with the U.S., a record intervention that has had a modest impact so far.
The yen has given up many of its initial gains, highlighting the limitations of government efforts to move prices in financial markets. The U.S. has also tried to stem a rise in bond yields, again with limited success.
Data released by the Japanese government Friday confirmed for the first time the historic scale of the operation that started in late July with the backing of Treasury Secretary Scott Bessent. Combined with an earlier defense of the currency in April and May, Japan's total spending on intervention this year has reached around $170 billion, reflecting Tokyo's anxiety after its currency fell to a 40-year low earlier this year.
A notepad in front of Bessent at a cabinet meeting on July 31 said buying $5 billion to $10 billion of yen was on his to-do list, although he hasn't subsequently stated the exact amount the U.S. spent.
The latest intervention succeeded in strengthening the yen somewhat. The currency was trading Friday between 159 yen and 160 to the dollar. Shortly before the intervention, the yen had weakened to nearly 164 yen to the dollar, a level that hadn't been seen since 1986. The yen is down around 8% against the dollar over the past year.
Yen weakness will be difficult to correct because a major factor driving its decline is sales of yen by foreign investors to cover currency risk when they invest in the booming Japanese stock market, analysts at Citi said in a note to clients Friday.
The joint U.S. intervention is as "at best a short-term corrective," said Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics. He said, "exchange rate trends depend primarily on monetary and fiscal policies."
Most market watchers expect the Bank of Japan to raise its benchmark interest rate at its next meeting set for Sept. 17-18. The move would further narrow the interest-rate gap between the U.S. and Japan, which many economists have cited as a major reason for the yen's weakness because investors can earn more by putting their money in dollars.
The central bank's deputy governor, Ryozo Himino, struck a hawkish tone at a news conference Thursday, citing the "risk of falling behind the curve if we fail to act in a timely manner."
The recent intervention was the first time since 1998 that the U.S. and Japan acted jointly to strengthen the Japanese currency. Bessent said the yen's weakness risked setting off a cascade of currency devaluations that could cause trouble for the U.S., and shortly after took unusual actions in the U.S. bond market as well to tamp down yields on long-term Treasury bonds.
Japan's finance minister, Satsuki Katayama, said Friday that the government would enhance the yen's credibility by boosting the country's long-term competitiveness and potential economic growth. She also emphasized cooperation with the U.S. and called the allies' coordination "extremely strong."
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