Japan's government and the Bank of Japan conducted a yen-buying, dollar-selling market intervention during New York trading hours on Thursday, marking their first such action in about three months. This intervention was substantial, with market players estimating it to be over 5 trillion yen, based on Bank of Japan data. The move caused the dollar to briefly plunge by about 5 yen, slipping below 158 yen and hitting its lowest level since mid-May.
Simultaneously, US authorities executed a "rate check," a process where officials ask financial institutions about exchange rate levels, often seen as a precursor to intervention. The US Treasury also informed several banks that it might intervene in the Japanese yen market on Friday and that they should "stand ready for future action," according to a Reuters source. This notice, channeled through the Federal Reserve Bank of New York, further fueled market expectations of coordinated efforts to stabilize the yen.
The news of potential US intervention helped push the yen higher against the dollar, with the currency trading at 159.09 to the dollar after hitting a low of 163.65 on Thursday. The US Treasury Secretary, Scott Bessent, expressed that the yen "seems very undervalued" and affirmed a "strong relationship and close coordination" with Japanese authorities. Japan's top currency diplomat, Atsushi Mimura, hinted at US involvement, stating that the support "goes beyond psychological support" and includes rate checks.
This intervention came as the yen had reached a 40-year low below 163 per dollar earlier in the month, exacerbating living costs due to soaring energy import prices. The timing of Japan's intervention was earlier than some analysts expected, preceding the Bank of Japan's policy meeting where the central bank was anticipated to keep interest rates steady but signal future hikes. While Washington appears to endorse Tokyo's efforts, it also signaled the need for the Bank of Japan to implement further rate increases.
Previous Japanese interventions, such as the record 11.7 trillion yen ($73 billion) spent between late April and early May, had only provided a brief boost before the yen resumed its downtrend. However, the current coordinated approach, with strong signals of US support, suggests a more significant and sustained effort to prop up the yen.
