Government, BOJ conduct rate check as yen briefly surges to ¥156 range, curbing yen weakness ahead of intervention

In the foreign exchange market, the yen briefly surged by more than ¥1 against the dollar from late on the 18th into the early hours of the 19th, reaching the upper ¥156 range per dollar. Interviews with government officials revealed that the government and the Bank of Japan had conducted a rate check, regarded as a preparatory step for yen-buying intervention. The BOJ decided at its policy meeting on the 18th to raise its policy rate from around 1.0% to around 1.25%, but speculation spread in the market that policymakers were divided over the rate hike, and yen selling and dollar buying prevailed.

The yen continued to weaken after the BOJ's rate hike decision as views spread that divisions among the Policy Board members would raise the hurdle for additional rate hikes. A rate check does not constitute actual intervention and does not involve the movement of funds, but it served as a market signal of the authorities' stance.

The latest rate check was the first such move since the large-scale yen-buying intervention conducted in late July. The yen plunged to around ¥164 in late July, reaching its weakest level against the dollar in approximately 39 years and 8 months. On 30 July, the government and the BOJ conducted an intervention worth ¥6 trillion–¥7 trillion to curb excessive yen weakness, and the US and Japanese governments launched coordinated intervention on 31 July.

The market has interpreted the latest rate check as a sign of vigilance over the BOJ's conduct of monetary policy and US interest-rate trends. Although it is not synonymous with carrying out intervention, the focus of the foreign exchange market is expected to shift toward the BOJ's policy management and the government's and BOJ's stance on intervention.