Japan’s $20 Billion Effort to Save The Yen

Japan used a record amount of 2.8T yen ($19.7B) of its easily accessible money to intervene in the foreign exchange market in support of the declining yen. This represents around 15% of Japan’s total available resources.

The amount was lower than the 3.6T-yen forecast made by traders on the Tokyo money market for Japan’s first dollar-selling, yen-buying intervention in 24 years to stop the steep depreciation of the currency. The ministry’s estimate, which shows the total amount spent on currency interventions from Aug. 30 to Sept. 28, is thought to have been utilized only for the intervention on Sept. 22. It would break the previous record of 2.62T yen set in 1998 for the largest dollar-to-yen exchange intervention. In November, confirmation of the spending dates will become public.

What Do Experts Predict for the Yen?

Daisaku Ueno, chief forex strategist at Mitsubishi UFJ (NYSE: MUFG) Morgan Stanley (NYSE: MS) Securities, said this was a tremendous burst of intervention. He emphasized Japanese authorities’ willingness to protect the yen. But as long as Japan continues to interfere alone, the impact of future action would wane, he added. The intervention came after the yen fell to a 24-year low of over 146 to the dollar. It caused a quick rise of more than 5 yen per dollar from that low, though the currency has subsequently drifted back to about 144.25.

At a meeting with cabinet ministers on Friday, Haruhiko Kuroda, governor of the Bank of Japan, stated that the recent abrupt, one-sided yen drops that make it harder for businesses to formulate business plans increase uncertainty. Therefore, it is undesirable and detrimental to the economy.

According to foreign reserves statistics on September 7, Japan had around $1.3T reserves, the second-largest behind China. 135.5B$ was a logged deposit with foreign central banks and BIS. Using such deposits as funding for more dollar selling and yen purchasing intervention is simple.