Japan spent record $96.5 billion to support yen over past month, ministry data shows

Japanese authorities spent a record 15.4 trillion yen, equivalent to $96.5 billion, intervening in foreign exchange markets over the past month to bolster the value of the yen, according to data released by the Finance Ministry on Friday. The scale of the intervention highlights Tokyo's determination to counteract the yen's slide to near four-decade lows, a move that threatens the profits of Japan's major exporters and drives up import costs, including energy.

Japan relies heavily on energy imports, with 95% of that coming from the Middle East, making it vulnerable to supply disruptions stemming from the Iran conflict. However, the Bank of Japan's relatively slow pace of policy tightening has kept interest rates low compared to markets like the U.S., prompting investors to continue funding global transactions using the cheaper yen.

The Bank of Japan maintained steady interest rates during its last meeting in July, although policymakers have indicated a willingness to accelerate the pace of tightening. Markets currently assign a 65% probability of a rate hike at the next meeting in September. The data, covering the period from July 30 to August 26, provides a cumulative figure for the specified timeframe, with a more detailed daily breakdown expected upon the release of quarterly figures, likely in early November.

The Bank of Japan entered the foreign exchange market on July 30 and July 31, including a rare joint action with the U.S., amid the yen's historic weakness, nearing 164 per dollar. The Bank of Korea synchronized its own intervention with Japan's to maximize the impact, according to South Korean officials. Earlier this month, BOJ data indicated that the intervention on July 30 could have exceeded 9.6 trillion yen, surpassing the current daily record of 6.3 trillion yen set in April.

The yen surged from approximately 163 per dollar to a peak of 155.20, before stabilizing around 159.50, where it has remained since August 10. To demonstrate Japan's capacity for large-scale intervention, the U.S. has assured Tokyo of support, potentially utilizing a COVID-era Federal Reserve facility that allows Japan to increase dollar liquidity without directly selling U.S. Treasuries.

U.S. Treasury Secretary Scott Bessent emphasized Washington's commitment to supporting Tokyo's efforts to stabilize the yen, noting that its undervaluation could lead to broader economic issues or competitive devaluations of other currencies.