The Japanese yen is trading near its lowest levels in more than three decades, reviving speculation of another round of government intervention. Even after the Bank of Japan (BoJ) raised interest rates in March for the first time since 2007 and again in July, the gap in borrowing costs in Japan and the US is weighing on the currency. Expectations that the Federal Reserve would trim rates less aggressively than previously thought in 2025 have contributed to the weakness.

Japan has spent close to $100bn intervening on four occasions in 2024 to prop up the yen. That’s an extraordinary amount for a country that historically has been criticized by trading partners for tolerating or even encouraging a weak yen to benefit its exporters. Japan is becoming increasingly aware of the pain inflicted by a weak currency.

Is there a certain level that triggers action?
While investors speculate about a “line in the sand” that authorities are determined to defend, it’s never absolute. Instead, authorities tend to talk more about the pace of moves, decrying excessive volatility. That’s because Japan is committed to international pacts stipulating that markets should determine exchange rates. The Group of Seven industrialized nations have indicated that excessive and disorderly moves can be harmful for economies and financial stability, allowing wiggle room for members to step into markets if there are sharp swings.

How do we know if the government intervened?
A sudden, vertical line on a price graph that extends for 2 yen is typically the first signal that Japan has bought or sold the currency, especially if the move extends to around 4 yen. Sometimes moves can be triggered by panic in the market or trading algorithms, as happened in October 2023. Since Japan announced its first intervention in more than a decade in September 2022 — within minutes of the operation — the nation’s forex officials have stuck to a strategy of trying to leave doubt in the market to increase wariness among currency traders. For transparency, the Ministry of Finance does release intervention figures at the end of each month, even if there hasn’t been any buying or selling, and then specifies daily intervention figures on a quarterly basis. The market can glean hints before these reports are released by comparing the BoJ’s accounts with money brokers’ forecasts for discrepancies.

What can authorities do beside actual intervention?
In addition to verbal intervention through warnings conveyed via the media, the Ministry of Finance, the Financial Services Agency and the BoJ could hold a three-way meeting to discuss market conditions. This kind of unscheduled gathering serves as another indication authorities are on alert and laying the groundwork for possible intervention. Officials may also conduct so-called rate checks. In this case, the BoJ calls up traders to ask about the price offer of the currency against the dollar. It’s a step short of an actual yen transaction that sometimes precedes intervention, so it’s meant to serve as a warning for traders to avoid one-way bets. It usually happens when volatility increases and regular verbal warnings by senior officials aren’t having the desired effect.

Who makes the call to intervene?
The Ministry of Finance decides whether to intervene in the market and the BoJ does the buying or selling. It’s usually preceded by choreographed verbal warnings by officials. If they say the government isn’t ruling out any options, or that it’s ready to take decisive or bold action, that’s usually meant to put markets on maximum alert that intervention may be imminent.

Where does the money come from?
When propping up the yen, the dollars come from Japan’s foreign reserves, which puts a limit on its firepower. At the end of November, Japan had $1.08tn in foreign currency. In the interventions that occurred in late April and early May, Japan appeared to sell some Treasuries to help finance the action, indicating ample funds for future market operations as those holdings dwarf its bank deposits.

Is intervention a good idea?
While buying intervention is a clear way to tell speculators you won’t allow your currency to go into free fall, it’s only going to be a temporary fix unless economic fundamentals driving the trend are also addressed. In addition, foreign reserves are generally there to protect the economy in the event of a major financial shock or unexpected event, not to artificially prop up the currency. A unilateral move is still seen as unlikely to turn the tide of currency momentum, but it can buy time until market dynamics change.

Does Japan have buy-in from global peers?
Largely, yes. While the US Treasury Department added Japan back to its “monitoring list” for foreign-exchange practices in June, it doesn’t appear that Tokyo’s interventions are considered highly problematic. The report lauded Japan’s transparency regarding foreign exchange operations, implying tacit approval from Washington. US Treasury Secretary Janet Yellen stuck to the line that currency intervention should be a seldom-used tool and officials should give fair warning in advance.

President-elect Donald Trump hasn’t clarified his latest thinking about market manipulation. During the election campaign, he indicated that he favoured a weaker dollar, but a series of pledges he made on tariffs and other policies may end up strengthening the greenback. Still, intervention to prop up a currency is generally less problematic internationally than action that lowers an exchange rate — which potentially gives an economy a competitive advantage. Also, Japan isn’t alone in fretting about foreign exchange. Countries across Asia have been stepping into markets to support their currencies.
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