Photo/Illutration Masato Kanda, a senior official at the Finance Ministry, declines to comment on whether the Bank of Japan intervened in the foreign exchange market on April 29. (Sawa Okabayashi)

A senior Finance Ministry official on April 29 repeated that the government is prepared to intervene in currency markets to bolster the yen but remained tight-lipped about whether this move occurred earlier in the day.

“The negative impact on the national economy of this violent and unusual fluctuation caused by speculation is hard to overlook,” Masato Kanda, vice minister of finance for international affairs, told reporters. “We will continue to take appropriate measures as necessary.”

He added, with emphasis, “We are prepared to respond 24 hours a day, 365 days a year, even in normal times.”

The yen on April 29 temporarily dropped to around 160 yen per U.S. dollar, its weakest level since April 1990.

The Japanese currency then abruptly surged to the 154-yen level.

Market players assumed the Japanese government and the Bank of Japan had intervened to push up the currency by more than 5 yen in a few hours.

But Kanda declined to comment on whether intervention had taken place.

“We will make a full announcement at the end of May,” he said.

An official with a major bank said the rough price movements “could only be seen as currency intervention.”

“It may be because the yen crossed the 160-yen mark,” the official said.

INTERVENTIONS IN 2022

On Sept. 22, 2022, the Japanese government and the BOJ intervened for the first time in about 24 years to sell dollars and buy yen.

At that time, Japan’s currency had weakened by about 25 yen over six months. It temporarily fell to the 145-yen range against the dollar that day.

Around 2.8 trillion yen was used, helping the yen return to the 140-yen level.

But a month later, the yen plunged to the 150-yen level, forcing the government and the BOJ to intervene twice more.

Since the beginning of 2024, the yen has depreciated by about 20 yen from the 140-yen level.

The government may have decided to intervene on April 29 in anticipation of further yen selling.

Repeated intervention alone will likely be insufficient to reverse the depreciation trend.

A drop in U.S. interest rates would narrow the gap with the ultra-low rates in Japan, helping to prop up the yen.

The U.S. Federal Open Market Committee will hold a meeting from April 30 to May 1, and if it decides to hold interest rates steady because of inflation, the Japanese currency could be headed for another tumble.

“We should take firm action against malicious speculation, but unless the gap in interest rates between Japan and the U.S. is narrowed, the essential problem will not be solved,” a senior Finance Ministry official said.

Japan’s foreign exchange reserves for interventions totaled $1.29 trillion (about 200 trillion yen) as of the end of March.

However, its readily available cash is only $155 billion of the total, while the remaining amount consists mostly of U.S. government bonds.

The Japanese government spent a total of 9 trillion yen in three rounds of intervention in 2022.

If the government sells a large amount of U.S. bonds to secure funds for intervention, there will be a risk of market turmoil.

(This article was written by Junichi Kamiyama, Sawa Okabayashi, Shinya Takagi and Tetsuya Kasai.)

Related News