On 8/5, Japanese media, citing central bank data, reported that officials had spent approximately 10 trillion yen (64 billion USD) since last week to support the domestic currency's value. The intervention is believed to have begun on 30/4, when the yen weakened against the US dollar to nearly 160 JPY per USD, marking a nearly two-year low.

Since then, the yen's value has rebounded multiple times, fueling speculation of further official intervention. On 8/5, the exchange rate stood at 157 JPY per USD. Speaking to the press on 7/5, Atsushi Mimura, Vice Minister of Finance for International Affairs, declined to comment on the matter.

A weak yen is expected to drive up inflation and living costs in Japan. Officials have also affirmed that this will have an unavoidable negative economic impact.

USD/yen exchange rate trends since 1990. *Chart: Reuters*

The yen's recent weakness is attributed to rising oil prices, which necessitate more USD for Japan to import fuel. Another factor is the interest rate differential between the US and Japan. US interest rates are currently 3,5-3,75%, while Japan's stand at 0,75%. US Treasury Secretary Scott Bessent is expected to visit Japan next week to discuss currency and other issues, according to Nikkei.

Over the past few decades, while global central banks tightened monetary policy, Japan maintained an ultra-loose stance. This made the yen an ideal target for carry trade, a strategy where investors borrow in a low-interest currency and then sell it to purchase a higher-yielding currency. The difference can then be saved or invested. Carry trade weakens the yen, despite its reputation as a safe-haven asset that protects investors during economic and political instability.

The Bank of Japan (BOJ) kept its benchmark interest rate unchanged at its April meeting. However, minutes from the March meeting, released recently, showed several BOJ officials emphasized the need for rate hikes, indicating their concern about inflationary pressures.

Japanese officials last intervened in the yen's exchange rate in 7/2024. At that time, they spent approximately 5.5 trillion yen to support the currency when the exchange rate was nearly 162 JPY per USD. That year, officials intervened two times in the market, as the yen at one point reached a 34-year low against the greenback.

Ha Thu (according to AFP, Reuters)