Japan May Have Spent Up to $44 Billion Supporting the Yen

Japanese authorities may have spent up to $44 billion supporting the yen during sharp currency market movements on July 30. In yen terms, this amounts to approximately 7 trillion.

Currently, this figure is a preliminary estimate by market participants and not an officially confirmed amount of currency intervention. Final data will be released by Japan's Ministry of Finance.

Speculation of government intervention arose after the yen strengthened by about 3% in a short period. The Japanese currency briefly strengthened to nearly 158 yen per dollar after falling to 163.94 yen, its lowest level in about 40 years.

The sharpness of the move, significant trading volumes, and prior warnings from Japanese officials reinforced traders' conviction that authorities may have been selling dollars and buying yen.

The preliminary size of the intervention is estimated by the market based on changes in Bank of Japan account balances and money broker forecasts. However, such calculations may differ from the final figure to be later reported by the Ministry of Finance.

Against this backdrop, the Bank of Japan on July 31 kept its key interest rate at 1%. The decision was supported by eight out of nine board members. One member proposed raising the rate to 1.25%.

Bank of Japan Governor Kazuo Ueda stated that the central bank may accelerate rate hikes if financial conditions remain excessively loose and heighten inflationary risks.

The weak yen makes imports of energy, food, and other products more expensive. This is particularly important for Japan, which heavily relies on foreign supplies of raw materials.

The Bank of Japan expects core consumer inflation to be around 2.5% in fiscal 2026. The central bank continues to monitor the yen's exchange rate, oil prices, and the effects of the previous rate hike.

Following the central bank's decision, the yen lost some of its sharp gains and weakened again to around 160 yen per dollar. This indicates that the possible intervention has not yet altered the fundamental factors pressuring the Japanese currency.

Sources: Bank of Japan, Japan's Ministry of Finance, The Wall Street Journal