[Foreign Exchange] Reviewing the Basics of "Foreign Exchange Intervention"

Foreign exchange interventions fall into two categories: unilateral and coordinated. A unilateral intervention is carried out independently by the government of one country, while a coordinated intervention is conducted jointly by multiple countries. Such interventions may be carried out jointly by Japan and the United States or under the G7 framework involving Japan, the United States and Europe.

Interventions to prevent yen depreciation were carried out intermittently from 2022 onward, amid concerns about adverse effects on the Japanese economy. The interventions in 2022, 2024 and 2026 were carried out by Japan alone, but a coordinated Japan-U.S. intervention was carried out in July 2026.

The funding constraints differ between preventing yen appreciation and preventing yen depreciation. Transactions such as selling the domestic currency to prevent yen appreciation are relatively less constrained by available funding. By contrast, preventing yen depreciation involves selling foreign currency and buying the domestic currency, making the amount of foreign currency held a limiting factor.

In the past, Japan acted alone to prevent yen appreciation during the extreme yen appreciation phase in 2011 and succeeded in reversing the trend. In contrast, international coordination became important in preventing yen depreciation in order to avoid a prolonged decline. This has contributed to the increased use of coordinated interventions today.

Foreign exchange intervention is intended to correct excessive market movements that have diverged from fundamentals, but international scrutiny is severe when a country is seen as guiding its currency lower through beggar-thy-neighbor policies. The U.S. Treasury's annual report is a focus in determining whether a country is a currency manipulator.