Yen depreciation pressure has continued even after coordinated Japan-US intervention, with multiple factors emerging around the scale of the intervention and the market response. Interest-rate differentials, fiscal conditions and the situation in the Middle East are among the factors underpinning the weaker yen.
According to Bloomberg, the Japanese government and the Bank of Japan conducted monthly yen-buying intervention in August totaling approximately ¥15.3993 trillion, the largest amount on record. Intervention totaling more than ¥11 trillion was also carried out at the end of April, in early May and in June. Market participants say that after the yen temporarily strengthened to around ¥164 to the dollar in late July, it briefly returned to that level as a result of the coordinated intervention, but has since been pushed back to the ¥159 range.
A large interest-rate differential with the United States and other countries is having a significant impact as a backdrop to the yen's depreciation. Although the Bank of Japan's policy rate is at a relatively high level, it remains low by global standards, making it easier for investors to borrow yen at low cost and shift into higher-yielding assets. In addition, high fiscal deficits and debt levels, as well as the pressure that higher import costs caused by rising oil prices place on households, are cited as factors supporting yen depreciation.
Rising global inflationary pressure associated with prolonged tensions in the Middle East, along with statements by US officials expressing concern about yen depreciation and a tougher intervention policy, are also heightening market vigilance. Reports that the US Treasury sold euros and bought yen during the coordinated intervention, as well as indications that Japan and the US are prepared to undertake further coordinated intervention, are also contributing to market volatility.
Intervention can move the yen in the short term, but a turnaround in the long-term trend is believed to require improvements in economic fundamentals. Against the backdrop of expanded foreign-exchange reserves, the Ministry of Finance has the capacity to intervene, and some believe that additional intervention could be possible depending on the timing going forward.