Japan: Ministry of Finance spends $42.7 billion to prop up yen

The Japanese Ministry of Finance revealed that the country had spent ¥6.35 trillion (approximately $42.7 billion) to support the yen last month.

Several central banks implemented interest rate hikes to battle domestic inflations, propping up the value of their currencies. The U.S. greenback strengthened to an unprecedented value in two decades. On the other hand, the Japanese government maintained a lax monetary policy, causing its currency to fall against others.

“There are times when we announce intervention right after we do it and there are times when we don't," Finance Minister Shunichi Suzuki said. “We are doing this to maximize effects to smooth sharp currency fluctuations.”

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Suzuki said the government constantly monitored market movements, saying it would not let "excessive currency moves driven by speculative trading."

Although the ministry did not provide details of when the country executed the intervention, analysts claim it happened on October 21, when the Japanese currency dropped to 151.94 per U.S. dollar. The government also likely conducted another intervention on October 24.

NLI Research Institute economist Tsuyoshi Ueno predicted that the Japanese government’s spending was around ¥7.5 trillion (approximately $50.4 billion). Ueno added that the government might not aim for repetitive interventions, unlike in 2004 and 2011, but instead wait for the right time for an optimum impact.

It was not the first time the Japanese government intervened in the financial market in 2022. Last September, the government sold its dollars and bought more yens to prevent the currency from plunging. The repeated interventions caused investors to wonder about the extent the government would defend the currency.

Itochu Research Institute economist Atsushi Takeda said that Japan would resume its market intervention in the coming days.

“Japan should still have more than 10 trillion yen left in cash, so big interventions at the level we’ve seen in September and October could happen maybe another three to five times,” Takesha added.

The Bank of Japan has received criticism for maintaining a lax policy. Politicians criticizing the BoJ said the central bank’s action was incongruous with the administration’s effort to curb the yen’s decline.

BoJ governor Haruhiko Kuroda dismissed the comments, saying that the bank’s loose policy was an effort to “support the economy with accommodative monetary policy” because Japan was still recovering from the COVID-19 pandemic. Kuroda also insisted that the BoJ and the government worked closely to solve the country's current economic crisis.

From October 21 to 31, the yen was below its 150 per dollar threshold. On Monday, the currency was at 148.70 per dollar.

U.S.’ opinion on Japan’s policy

The U.S. Treasury was aware of Japan’s intervention in the market last September, saying it understood why the country had to take the measure. However, U.S. Treasury Secretary Janet Yellen refused to comment on Japan’s repeated interventions in the market.

The greenback, one of the biggest contributors to the yen's downfall, is expected to grow stronger in the coming days. The Federal Reserve will hold an FOMC meeting from Tuesday to Wednesday to determine another interest rate hike. The market is divided between 75 and 50 basis points hikes as inflation data showed mixed results.