Japan confirms first currency intervention since 2022 with $62 billion in...

What’s going on with the Yen :yen:?
What is a currency intervention?

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Japan spent a record ¥9.7885 trillion ($62.25 billion) on currency market interventions between April 26 and May 29 to prop up the yen, marking its first such move since 2022.[1] This massive intervention dwarfed the ¥9.2 trillion spent throughout 2022 and came as the yen plunged to a 34-year low of 160.03 against the US dollar on April 29 before rebounding.[1][3]

The Bank of Japan’s ultra-low interest rates and the interest rate gap with other major economies have kept downward pressure on the yen.[3] Japanese firms also tend to reinvest overseas profits rather than repatriating them, reducing yen demand.[3] While a weaker yen aids exporters, it raises import costs, especially for energy.[3]

Prior to the announcement, analysts estimated Japan’s April-May intervention around ¥9 trillion based on central bank data.[2][4] The finance ministry confirmed spending over ¥3.5 trillion on May 2 alone after around ¥1 trillion on April 29.[4] Officials warned of further action against “excessively volatile” yen moves.[6]

Sources
[1] Japan confirms first currency intervention since 2022 with $62 billion in spending https://www.cnbc.com/2024/05/31/japan-confirms-first-currency-intervention-since-2022.html
[2] Japan will release its forex intervention data today, Friday, 31 May … Japan will release its forex intervention data today, Friday, 31 May 2024. | Forexlive
[3] Japan will struggle to rescue its plummeting currency - The Economist Japan will struggle to rescue its plummeting currency
[4] Japan Likely Spent About $23 Billion in Latest Yen Intervention Bloomberg - Are you a robot?
[5] Japan Spent Record $62 Billion in Past Month on Yen Intervention Bloomberg - Are you a robot?
[6] Japan issues fresh warning on yen drops and signals readiness to … https://www.japantimes.co.jp/business/2024/05/25/economy/japan-yen-warning-intervention/

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A currency intervention is a monetary policy tool used by central banks or governments to influence the exchange rate of their domestic currency against other currencies in the foreign exchange market.

Key Points About Currency Interventions:

  • It involves the central bank buying or selling its own domestic currency in exchange for foreign currencies, with the intention of raising or lowering the value of its currency.[1][2]

  • It can be done directly through actual transactions in the forex market (operational intervention), or indirectly through verbal communication and policy signals (verbal intervention).[5]

  • Interventions aim to stabilize excessive volatility, prevent overvaluation/undervaluation of the currency, support exports/imports, or maintain financial stability.[2][4]

  • They can be unilateral actions by one central bank, or coordinated multilaterally with other central banks (concerted intervention).[5]

  • Interventions can be “sterilized” by offsetting the impact on domestic money supply through open market operations, or “unsterilized” by allowing money supply changes.[2][5]

  • Major currency interventions in recent history include the Plaza Accord in 1985 to weaken the US dollar, and actions by Switzerland and Japan to curb strength of their currencies.[2][4]

So in essence, currency interventions are policy tools that allow central banks to directly influence forex markets and exchange rates, usually with the goal of preventing excessive volatility or misalignment that could harm the domestic economy.[1][2][4][5]

Sources
[1] What is “Currency Intervention” | Forex Trading Glossary - Fibo Group What is "Currency Intervention" | Definition and meaning of the term | Forex Trading Glossary
[2] Currency intervention - Wikipedia Currency intervention - Wikipedia
[3] What Is Currency Intervention? - The Balance What Is Currency Intervention?
[4] Foreign Exchange Intervention Definition, Strategies, Goals Foreign Exchange Intervention Definition, Strategies, Goals
[5] Central Bank Intervention Definition | Forexpedia™ by BabyPips.com Central Bank Intervention Definition | Forexpedia™ by BabyPips.com

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I think they have been selling US bonds to get US dollars to buy yen. Increasing the demand and therefore the price yen vs USD.

I wonder how large the carry trade is currently? When people barrow at low Japan interest and buy US dollars to purchase treasuries at s higher rate.

You barrow 150 million yen at 2 percent. Buy 1 million US bond at 4.5 percent. You get 1 million forty five thousand dollars and meanwhile the yen goes to 200 per dollar and you need 765k to get the 153 million yen to pay off the loan.

Of course the yen won’t depreciate that much but you get the idea.

I could see this going pear shaped for Japan if they cannot arrest the currency devaluation because it multiplies the returns of the carry trade.

This is how some people made a lot of money during the Weimar inflation. They would barrow Marks, exchange them for other currencies and the. repay the loans with further devalued Marks

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