Japanese authorities spent 5.53 trillion yen ($36.8 billion) in July, intervening in the foreign exchange market to counter the yen's weakness and pull it away from 38-year lows. This action confirmed suspicions among traders and analysts after sharp yen spikes on July 11 and 12, which money market estimates had previously pegged at around 5.71 trillion yen. During those two days, the yen surged from as low as 161.76 per dollar to as high as 157.30.
This July intervention differs from previous rounds, including a record 9.79 trillion yen intervention between late April and early May. Unlike earlier efforts, the July intervention saw officials buying yen as the dollar was already falling due to surprisingly weak U.S. consumer inflation data. Despite this, analysts like Shoki Omori, chief Japan desk strategist at Mizuho Securities, suggested that the impact of the intervention might have been less significant without comments from figures like Donald Trump advocating for a weaker dollar, which further propelled the yen's rise.
Further intervention remains a possibility, with Japan holding substantial foreign reserves of $1.23 trillion as of the end of June. The yen's weakness is unpopular with the public and could become a key issue in upcoming ruling party leadership elections in September. Atsushi Mimura, the new vice finance minister for international affairs, has indicated that intervention remains on the table, succeeding Masato Kanda who concluded his tenure as Japan's top currency diplomat. Despite a recent 25 basis point rate hike by the Bank of Japan, Omori anticipates a weakening of the yen again in August, citing that the slight rate increase does not significantly reduce the appeal of carry trades.
