The sudden jump in the yen against the dollar on Monday took traders by surprise, with many attributing it to yen-buying intervention by Japanese authorities. The currency, which has been near 34-year lows, saw a sharp decline in the dollar to 156.55 yen from its earlier high of 160.245. Trade sources reported that Japanese banks were actively selling dollars to buy yen, indicating a deliberate effort to boost the struggling currency.
This is not the first time Japan has intervened in the currency market to manipulate exchange rates. In 2022, Japan took similar measures three times, selling dollars to buy yen. The most recent interventions were in September and October, when the yen was heading towards a 32-year low of 152 to the dollar. The repeated interventions highlight Japan’s commitment to stabilizing its currency against external forces.
Despite these interventions, the yen has continued to face downward pressure, particularly as U.S. interest rates rise while Japan’s remain near zero. This interest rate differential has led to a flow of cash out of yen and into dollars, a trend known as the “carry trade.” While monetary policy in Japan may not directly target currency rates, the impact of exchange rate volatility on the economy cannot be ignored.
International Cooperation
The recent agreement between the United States, Japan, and South Korea to “consult closely” on currency markets highlights the interconnected nature of global currencies. In a rare move, these countries have signaled their intention to coordinate efforts to address excessive volatility in currency markets. Tokyo’s increased rhetoric against abrupt yen movements reflects a growing concern over the impact of exchange rate fluctuations on economic stability.
Yen-buying intervention by Japanese authorities has far-reaching implications for global currency markets. As Japan continues to grapple with a weak yen, its actions reverberate through international exchanges. The ongoing efforts to stabilize the yen amidst external economic pressures underscore the delicate balance between domestic policy objectives and international market dynamics. Only time will tell how effective these interventions will be in addressing the underlying challenges facing the Japanese economy.