Japan Has Spent $20 Billion Dollars To Prevent Yen’s Further Decline
According to Ministry of Finance figures released on Friday, Japan used up to a record amount of money ($19.7 billion) last week to intervene in the foreign exchange market to support the yen, using up over 15% of the country’s readily accessible intervention funds.
For Japan’s first dollar sale, the amount was smaller than the 3.6 trillion-yen prediction made by brokers on the Tokyo money market. For the first time in 24 years, yen have been purchased to stop the sharp depreciation of the currency.
It is generally acknowledged that the intervention on September 22 was the only application of the estimated total expenditures for currency intervention made by the government from August 30 to September 28. In 1998, 2.62 trillion yen was spent during interventions, setting the previous high rating for both dollar sales and yen purchases. In November, confirmation of the spending dates will be made public.
The Japanese government’s resolve to protect the yen is highlighted by this large burst of intervention, according to Daisaku Ueno, the chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities. But as long as Japan continues to interfere alone, the impact of further action will wane, he added.
After the yen hit a 24-year low of more than 146 to the dollar, the intervention was made. It produced a sharp increase of more than 5 yen per dollar from that level, although the exchange rate has since fallen lower to around 144.25.
The governor of the Bank of Japan, Haruhiko Kuroda, is quoted as stating during a meeting with cabinet ministers on Friday. “Recent abrupt, one-sided yen drops that make it harder for businesses to formulate business plans increase uncertainty. Consequently, it is undesired and bad for the economy.”
The Bank for International Settlements (BIS) and other foreign central banks each had deposits totaling $135.5 billion, making Japan the second-largest reserve holder after China with nearly $1.3 trillion in total holdings. These deposits are conveniently accessible to fund additional dollar selling and yen buying action.
Izuro Kato is Totan Research’s chief economist, a think-tank division of a significant Tokyo-based money market brokerage company. He said, “Even if it were to intervene once more, Japan will definitely not be required to sell US Treasury bills, instead choosing to use this deposit temporarily.”
Japan would be required to use a fraction of its $1.04 trillion in securities assets if the deposits ran out.
The two principal forms of foreign assets owned by Japan are deposits and securities, which are the supplest and quickly convertible.
Other holdings include gold, IMF reserves, and special drawing rights (SDRs). However, analysts warn that it would take some time for these assets to produce dollars.
Also read about Japan to launch bank-deposit-backed digital currency in this year