An overview of the effectiveness of foreign exchange intervention, following USD/JPY's return to the ¥159 level. It reviews the rapid appreciation of the yen and depreciation of the dollar after coordinated Japan-U.S. intervention, as well as the subsequent retracement of more than half of the market move, and organizes the intervention's effects and the factors to watch going forward.
From 30 July onward, the yen strengthened rapidly following coordinated Japan-U.S. intervention, and USD/JPY hit ¥155.23 on 3 August. By contrast, it had recovered to ¥159.39 by 10 August, retracing more than half of the move from the pre-intervention highs.
Uncertainty over the situation in the Middle East and higher oil prices contributed to periods in which dollar buying and yen selling prevailed. This has led to the view that it is difficult for intervention to reverse the market trend.
The report notes that the government’s emphasis on fiscal discipline and stated understanding of Bank of Japan rate hikes could help restrain yen depreciation to some extent without repeated intervention. At the same time, the fact that intervention was able to contain yen depreciation beyond ¥164 to the dollar is cited as evidence of its effectiveness.
Based on the implementation of coordinated Japan-U.S. intervention and the foreign exchange market’s response, this report sets out intervention’s role in short-term stabilization rather than its long-term effects.