Japanese Data to Confirm FX Intervention as Yen Weakness Persists

REUTERS/Issei Kato/File Photo
A man walks past an electronic screen displaying the current Japanese Yen exchange rate against the U.S. dollar and other foreign currencies in Tokyo, Japan May 2, 2024.

TOKYO, May 31 (Reuters) – Japan will release closely watched data on Friday that shows how much it spent intervening in the foreign exchange market to prop up the yen in May, in moves that kept the currency from testing new lows but are unlikely to reverse longer-term declines.

Tokyo is suspected to have spent around a combined 9 trillion yen ($57.11 billion) on April 29 and May 2 to arrest the yen’s sharp fall to a 34-year low of 160 to the dollar, according to private-sector estimates.

Authorities have been tight-lipped on whether they forayed into the market in “stealth intervention,” keeping markets focused on Friday’s data on the amount it spent on intervention from April 26 to May 29.

The monthly data only shows the total amount Japan spent on currency intervention during the period. A more detailed daily breakdown of intervention will only be seen in data for the April-June quarter, likely to be released in early August.

After hitting a 34-year low of 160.245 yen on April 29, the yen bounced back on suspected intervention but has languished near the 160-threshold, widely seen as authorities’ line in the sand for currency intervention.

Now, market attention is shifting to whether and how soon Japan might step into the market again.

Much of that depends on the strength of the U.S. economy and Federal Reserve’s rate cut path, while the Bank of Japan (BOJ) is expected to take its time in raising interest rates this year.

Last week, Japan renewed its push to counter excessive yen falls during a weekend gathering of Group of Seven (G7) financial leaders, which was helped by the group again warning against excess currency volatility.

“Given that there was no opposition from other countries, Japan will likely continue efforts to curb excessive yen falls through intervention,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.

However, U.S. Treasury Secretary Janet Yellen said last week intervention should be restricted to “exceptional” cases, underscoring her “belief” in the market-set exchange rates.

Meanwhile, Japan’s top currency diplomat Masato Kanda issued a fresh warning on the chance of renewed intervention, saying Japan stands ready to take action in the market “any time” to counter excessive yen moves.

Having engaged in the past yen-selling intervention more than two decades ago, Kanda, now the vice finance minister for international affairs, once again led yen-buying operations in 2022 spending about 9.2 trillion yen over three days.

Although Japan has had only limited success in arresting sharp yen swings, there’s a good chance it could act again even if the currency does not break beyond the 160-to-the-dollar mark, said Masafumi Yamamoto, chief FX strategist at Mizuho Securities.

“Japan must have won backing from G7 including the U.S. to intervene in the currency market again,” he said. “If the yen makes sharp single-day moves from the current level to say, 158 yen or beyond, it might take action again.”

The dollar was trading at 156.850 yen JPY=EBS on Friday, not far from the 160-yen threshold.

($1 = 157.6000 yen)