The Yen’s Rebound and the Possible BoJ Intervention: What’s Happening in Japan

The Stronger Yen: Japan’s Currency Situation

In late April, the Japanese yen strengthened against the US dollar, bouncing back from its lowest point in 34 years.
Market observers suspect that this upward trend is a result of intervention by Japanese authorities.

April 29 marked a significant shift, with the yen going from 159.5 to 154.5 against the dollar.
Speculation suggests that this recovery could be attributed to Japan’s selling of dollar reserves and subsequent yen purchases, marking the first time since the end of 2022.
The Financial Times noted that the yen’s decline had accelerated after the Bank of Japan maintained near-zero interest rates.

Post-Golden Week Speculations

Following the Golden Week, a week full of national holidays from April 29 to May 4, where authorities could manipulate the yen more easily due to lower trading volumes, Japan now waits to see what the near future holds.
The specter of speculation looms over a currency that has been in the eye of the storm for too long.

“It is difficult to ignore the speculative, violent, and abnormal movements in the currency market that are harming the economy,” stated Masato Kanda, Japan’s top currency official.
While he refused to comment on the Finance Ministry’s actions in late April, Kanda emphasized that authorities are prepared to respond “24/7, 365 days a year.”

Yen’s Fluctuations and Market Reactions

Since the beginning of 2024, the yen has depreciated by around 10% against the dollar.
Analysts attribute this to the possibility of the US Federal Reserve keeping financing costs high to curb inflation.
Continuous interventions by Japanese authorities are deemed necessary to prevent the yen from dropping below 155 yen per dollar.

On May 1, a rise in the yen in New York fueled speculation of a second intervention by Japanese authorities.
Kanda once again refrained from confirming any action.
This discretion aligns with Tokyo’s strategy of keeping market players in the dark about its position and maintaining caution.

Challenges and Strategies Ahead

Despite the formidable fundamentals, such as the interest rate differentials between the US and Japan and a healthy risk appetite, Japan faces an uphill battle to sustainably strengthen the yen.
The country is not alone in combating currency weaknesses, with the impact of high US interest rates reverberating globally.

The Japan case is particularly worrying, with concerns about potential disorder and dysfunction that could downgrade the nation’s status to that of an emerging economy.
However, Japan’s substantial foreign exchange reserves, exceeding $1 trillion, and the advantageous position for many Japanese businesses amidst the yen fluctuations provide some solace.

In conclusion, Japan has emerged from decades of deflation and stagnant wages, but the yen’s current trajectory presents an unprecedented challenge.