February 29, 2024

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Japan spent a record $20.0 billion on intervention to prop up the yen

Japan spent a record $20.0 billion on intervention to prop up the yen

  • The intervention drains approximately 15% of readily available funds
  • Japan can avoid selling US Treasuries for now – Analysts
  • Impact of further intervention may wane – analysts

TOKYO (Reuters) – Japan spent as much as 2.8 trillion yen ($19.7 billion) on foreign exchange market intervention last week to prop up the yen, Finance Ministry data showed on Friday, draining nearly 15% of funds. ready to intervene.

The figure was lower than the 3.6 trillion yen estimated by Tokyo money market brokers for the first Japanese intervention in selling dollars and buying yen in 24 years to stem sharp weakness in the currency.

The department’s figure, which indicates total currency intervention spending from August 30 to September 28, is widely believed to have been used entirely for the intervention on September 22. It will surpass the previous record of selling dollars and intervening in buying yen in 1998 of 2.62 trillion yen. Confirmation of spending dates will be released in November.

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“This was a huge explosion of intervention, if it happened in a single day, confirming the Japanese authorities’ determination to defend the yen,” said Daisaku Ueno, chief forex strategist at Mitsubishi UFJ Morgan Stanley Securities.

“But the effect of further intervention will diminish as long as Japan continues to intervene on its own,” he said.

The intervention, which was made after the yen fell to a 24-year low of nearly 146 per dollar, triggered a sharp rebound of more than 5 yen to the dollar from that low, although the currency has since drifted lower again to about 144.25.

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“Recent unilateral sharp declines in the yen have increased uncertainty by making it difficult for companies to come up with action plans. It is therefore undesirable and bad for the economy,” Bank of Japan Governor Haruhiko Kuroda was quoted as saying at a meeting with government ministers on Friday. .

Japan held about $1.3 trillion in reserves, the second-largest after China, of which $135.5 billion was held in parked deposits with foreign central banks and the Bank for International Settlements (BIS), according to foreign reserves data released on September 7. It can easily be used to finance further selling in dollars and to intervene in buying the yen.

said Izuru Kato, chief economist at Totan Research, a think tank for big money market brokerage firm in Tokyo.

If deposits dry up, Japan will need to dip into its roughly $1.04 trillion securities holdings.

Among the main types of foreign assets held by Japan, deposits and securities are the most liquid and can be converted into cash instantly.

Other holdings include gold, IMF reserves and the International Monetary Fund’s Special Drawing Rights, although buying dollar cash from these assets will take time, analysts say.

(1 dollar = 144.4000 yen)

(This story is corrected to add the dropped word ‘to’ in the first paragraph)

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Additional reporting by Lika Kihara and Tetsushi Kajimoto; Editing by Sam Holmes, Edmund Claman and Shri Navaratnam

Our criteria: Thomson Reuters Trust Principles.