Japan’s vice finance minister for international affairs, Masato Kanda, maintained ambiguity on whether Tokyo intervened in the foreign exchange market to bolster the yen, dismissing a local media report suggesting confirmation of such action. Kanda stated on Friday morning that no definitive answer had been provided regarding intervention, emphasizing strict controls to prevent insider trading.
Speculation arose late Thursday as the yen strengthened sharply from 161.58 to 157.44 against the dollar within half an hour after weaker-than-expected US inflation data. This surge prompted conjecture that Japan capitalized on initial market movements following the data release. As of Friday morning in Tokyo, the yen traded at 158.65 per dollar.
The Mainichi newspaper, citing an unnamed government official, reported intervention, a move unexpected by market observers who anticipated action only in the event of a yen depreciation spurred by hotter US inflation figures. The Ministry of Finance is scheduled to disclose its monthly intervention data on July 31, coinciding with Kanda’s imminent departure and the appointment of Atsushi Mimura as his successor.
Simultaneously, the Bank of Japan plans to conclude its latest monetary policy review, with expectations of potential interest rate hikes and details on scaling back sovereign debt purchases.
Kanda’s strategy aims to inject unpredictability into currency markets, deterring speculative activities. Japan’s recent interventions include a record ¥9.8 trillion expenditure in April-May to support the yen, surpassing 2022’s total defense spending. Kanda’s approach involves carefully timed market entries, delaying disclosure to mitigate immediate market reactions.
Past incidents, such as the yen’s rapid strengthening in October 2023, prompted market jolts mistaken for interventions, underscoring the sensitivity of algorithmic trading to perceived signals. Kanda refrains from frequent commentary on currency policy to avoid telegraphing Tokyo’s intentions to market participants.
If confirmed, Thursday’s intervention would represent a departure by Japan, leveraging yen strengthening to extend its impact, potentially reducing costs associated with typical interventions. However, such actions risk international scrutiny, including from the US Treasury, which advocates sparing use of currency interventions with transparent pre-notice under Group of Seven agreements.
Traditionally, Japan intervenes during sharp depreciation scenarios to stabilize exchange rates, gaining tacit acceptance from global counterparts. By contrast, Thursday’s potential move followed a period of relative stability, challenging traditional justifications for intervention based on economic stability concerns.
Kanda highlighted the impact of prolonged currency devaluation on Japan’s import prices, attributing significant rises to yen weakness over recent periods.
