As per a recent report from the Bank of Japan (BOJ), the Asian powerhouse has likely spent as much as 5.48 trillion yen (USD 35 billion) to bolster its embattled currency, following reports about Tokyo intervening a week back to arrest the yen’s sharp selloff, worsened by a spike in oil prices due to the Iran war.
The central bank’s projection for money market conditions on May 7 indicated a 9.48 trillion-yen net outflow of funds. Major money market firms had forecast a drawdown of between 4 trillion yen and 4.5 trillion yen.
Japan’s most recent state intervention on the yen happened in July 2024, when the government spent about USD 36.8 billion to bolster the currency after it sank to a 38-year low of 161.96 per dollar.
According to Atsushi Mimura, Tokyo’s top currency diplomat, Japan faces zero constraints when it comes to intervening in currency markets. The Far East Asian country is also in daily touch with US authorities.
While US Treasury Secretary Scott Bessent will be visiting Tokyo in May, investors will be looking for answers regarding Japan’s sustained intervention in the money market and the Bank of Japan’s rate path. The question here is, will Tokyo be able to shore up its currency on its own? Or will it need US backing to do so?
Bessent, who will be meeting his Japanese counterpart Satsuki Katayama, is expected to discuss yen moves, with markets already on alert for the Donald Trump administration official’s possible comments on the currency. Equal focus will be on the Bank of Japan’s monetary policy, given Bessent’s past remarks favouring speedier interest rate hikes.
“Our counterparts fully understand our thinking and our actions. Our focus, consistently and without change, is directed in all directions,” Mimura, the vice finance minister for international affairs, told reporters, stressing that Tokyo continues to see speculative moves in the currency market.
During his visit, Bessent will also meet Prime Minister Sanae Takaichi, along with BOJ Governor Kazuo Ueda, as per a report by the Nikkei newspaper.
“The market’s biggest focus is whether the US will join Japan in intervening. For now, it’s highly likely to be solo, which won’t be as powerful as joint action. The US probably feels the yen’s weakness is not due to speculative action but slow BOJ rate hikes. Bessent may thus informally call on the BOJ to raise rates in June,” said Shota Ryu, FX strategist at Mitsubishi UFJ Morgan Stanley Securities, while interacting with Reuters.