FX168 Financial News (Asia Pacific) News After the USD/JPY exchange rate rose to its highest point in 34 years, Japan spent a record 9.8 trillion yen in April, or about US$62.2 billion to support the yen, exceeding the total amount of money Japan spent defending the yen in 2022. However, the depreciation of the yen is still irreversible. Economists suggest that a black swan incident with the Bank of Japan's interest rate hike may come.

Japan's Ministry of Finance released data from April 26 to May 29 on Friday, which surpassed an earlier estimate of 9.4 trillion yen based on Bank of Japan accounts and currency brokers' forecasts. Japan's previous monthly intervention record of 9.1 trillion yen was set when the authorities tried to lower the yen in the fall of 2011, when the situation was quite different. #日元贬值 #

(Source: Bloomberg)

Bloomberg notes that record intervention spending shows that the Japanese government is determined to crack down on speculators who have shorted the yen. The huge intervention expenditure also highlights the fact that even a brief impact on the market requires large-scale action, and its efforts to defend the yen are gradually weakening.

Hirofumi Suzuki, chief foreign exchange strategist at Sumitomo Mitsui Bank, said, “This amount feels a bit big, but it's basically within the expected range. It's not over 10 trillion yen, so it doesn't feel like it's too big, and the dollar doesn't actually have much reaction against the yen.”

The data for each reporting month usually includes the last two working days of the previous month. The Japanese government will release details of foreign exchange reserves next week, and daily operating data including April and May in the summer. At that time, more details on how it will intervene may be revealed.

(Source: Bloomberg)

The yen is expected to continue to be under pressure due to the huge difference between Japan and the US dollar. Although the Bank of Japan has finally joined the Federal Reserve's tight monetary policy, Japan's short-term interest rate is still only 0.1%, while the Federal Reserve's interest rate is 5.5%.

Unless there are more clear signs of when US interest rates will begin to fall, or the Bank of Japan will be more aggressive in raising borrowing costs or reducing the size of bond purchases, the situation is unlikely to reverse.

Japanese currency officials know that their efforts are only buying time, not reversing the situation. Seen from this perspective, the intervention was relatively successful. Although the yen has recovered most of its gains from a month ago, the exchange rate against the US dollar has not returned to the 160 level.

“You really can't tell how much impact spending a certain amount of money can have, because the market is like a living organism,” said Hideo Kumano, an executive economist at the First Life Economics Research Institute and a former central bank official. “But without intervention, the yen will depreciate further, so I think the action of about 10 trillion yen is effective.”

Japanese officials are silent on whether to intervene as a strategy to deceive market participants and prevent speculators from interfering. This time, the authorities intervened at the beginning of the latest reporting period and successfully secured a period of about a month. #日本市场 #

Japan raised intervention funds to buy yen by selling foreign exchange reserves. At the end of April, data showed that the country's foreign exchange reserves were 1.14 trillion US dollars, which indicates that Tokyo still has enough firepower to deal with the yen shortfall.

However, since Japan needs to maintain foreign exchange reserves in response to the global crisis or other emergencies, it can only use part of its reserves to support the national currency.

The country must also consider its international commitment to let the market determine the exchange rate.

US Treasury Secretary Janet Yellen (Janet Yellen) has said several times in recent weeks that monetary intervention should be a rarely used tool, and that officials should give reasonable warning when resorting to intervention. She pointed out earlier this month that the G7 have agreed that the exchange rate will not be adjusted unless extreme fluctuations can be curbed.

If the yen continues to depreciate, the Bank of Japan may face greater pressure to take more measures to stop the depreciation of the yen.

There are already signs that Bank of Japan Governor Kazuo Ueda has adjusted his remarks about the yen to indicate that if the yen triggers inflation, the Bank of Japan may raise interest rates. This shift in attitude comes after the latest intervention following a meeting with Prime Minister Fumio Kishida in early May.

Remarks after the Bank of Japan's April policy meeting are thought to have exacerbated the weakness of the yen and prompted Japan to take intervention measures. This result is similar to a series of similar events that occurred in September 2022.

However, since Kazuo Ueda took office as governor, the Bank of Japan has changed, raised interest rates for the first time since 2007, and lifted the 10-year government bond yield cap. The yield is allowed to rise above 1%. #日本央行动态 #

Kumano mentioned, “The Bank of Japan may think the April communication was somewhat chaotic.”

“This doesn't mean that interest rate hikes are inevitable in July, but it may suggest that interest rate hikes are imminent, and at the same time raise expectations of rising yields,” he added.