Japan Spent $36.8 Billion to Prop Up Yen in July, Data Shows

Japanese authorities intervened aggressively in the foreign exchange market during July, spending a substantial 5.53 trillion yen ($36.8 billion) to support the yen. This intervention, confirmed by the Ministry of Finance, followed the yen’s sharp decline to a 38-year low against the dollar, marking a significant effort to stem the currency’s weakness.

The intervention, which took place over two days (July 11-12), aimed to halt the yen’s rapid depreciation. While official figures cover a broader period from June 27 to July 29, it was during those two days that the yen experienced a dramatic rebound, moving from as low as 161.76 per dollar to as high as 157.30.

However, analysts suggest that the intervention was not the sole factor driving the yen’s recent appreciation. Other influential elements, including statements from U.S. presidential candidate Donald Trump advocating for a weaker dollar, and calls from Japanese politicians for the Bank of Japan (BOJ) to raise interest rates, played a significant role.

The BOJ’s subsequent decision to hike interest rates, further fueled by a hawkish stance from Governor Kazuo Ueda, contributed to the dollar’s decline.

Despite the yen’s recent gains, experts anticipate a potential weakening in August. The attractiveness of carry trades, where investors borrow yen at low rates and invest in higher-yielding assets abroad, could drive the yen downward. Nevertheless, the BOJ’s recent policy shift might provide long-term support for the currency.

While Japan’s authorities possess substantial foreign reserves, allowing for further intervention if needed, the political implications of such actions are not to be overlooked. The public perception of a weak yen is generally unfavorable, and intervention could become a contentious issue as the ruling party navigates leadership elections in September.