USD/JPY: Japan Spends $60 Billion in Four Days to Prop Up Yen’s Value. Is InterYention Working?

Key points:
  • Yen strengthens by about 5%.
  • Japan rushes to defend yen.
  • Bank of Japan in a tight spot.
Roméo A. / Unsplash

Japanese authorities splurged piles of dollars this week in efforts to shore up their currency. Operation seems to be working… for now.

  • The USDJPY pair is down bad this week but that’s good news for Japan, dollar-yen bears, and yen supporters. Over the course of four days, starting Monday, Japan is suspected of conducting two forex-market interventions in efforts to prop up the value of its currency. The total amount of dollars spent has been estimated to roughly $60 billion or ¥9 trillion. What’s the outcome and is this an early sign of a trend reversal?
  • The yen has added under 5% to its valuation since dropping to a fresh 34-year high of ¥160.20 to the dollar on Monday. Early on Friday, the dollar-yen is floating near the ¥153.00 handle, indicating that, indeed, the interventions might be working. But the bigger picture is telling its own story. Japan is facing mounting challenges, such as an aging population and a decadeslong economic slump.
  • Japan may have won the battle, but the war is not over yet. Vicious currency speculators might decide to make this increasingly difficult by bucking the trend reversal and dwarfing the sell walls from Japan. A cheaper yen might be good for Japanese exports but it makes foreign products like tech, foods, and gas, worth more. Further, the Bank of Japan is struggling to justify an interest rate hike — which would help drive the yen higher — amid a slowdown in consumer spending.