As dollar-yen moves into the lower ¥160 range amid further yen depreciation, the government's and Bank of Japan's line of defense against yen weakness is the main focus. The article reviews the mechanics and track record of foreign-exchange intervention and looks ahead to future developments.
Dollar-yen is currently in the lower ¥160 range as the yen continues to weaken, making the government's and Bank of Japan's line of defense against yen weakness the market's main focus. The article identifies ¥160 as the most important psychological and practical line of defense, with the speed of excessive fluctuations serving as a criterion for intervention decisions.
The basic mechanism of foreign-exchange intervention is for the Ministry of Finance to issue instructions and the Bank of Japan to use foreign-exchange reserves to support the yen through yen purchases. The actual deployment of funds is carried out through a phased process. The process begins with verbal intervention, followed by rate checks, covert intervention and coordinated intervention by Japan and the US.
As a track record, multiple yen-buying interventions were carried out from 2022 through 2026, with the scale reaching a record high in 2026. Most recently, coordinated intervention by Japan and the US was carried out when the yen reached the upper ¥160 range in April–May and approached ¥164 in July–August.
Going forward, key factors will include the risk of a sharp fall if the yen breaks through ¥160, US economic data and expectations for additional Bank of Japan rate hikes. Intervention is likely to remain limited to "buying time," while the long-term direction of the yen will be determined by monetary policy and interest-rate differentials between Japan and the US.