Japan spent a likely record daily amount to prop up the yen last week, leaving economists and investors wondering how many times the government could intervene again despite skepticism over the effects of such action.
The Japanese Ministry of Finance yesterday said that it spent ￥2.84 trillion (US$19.7 billion) last month to slow the yen’s slide in its first intervention to support the currency since 1998.
Some private analysts had estimated the intervention at up to ￥3.6 trillion.
The widely held view among market participants and economists is that the intervention only took place on Thursday last week after the Bank of Japan’s stand-pat decision, although the data cover the whole month.
More specific details on daily intervention last month and the currency pairs involved are to be announced early next month.
Despite an initial gain of more than 3.5 percent in the yen against the US dollar, the surprise move has not reversed the currency’s weakening trend amid a continued strengthening of the greenback. Volatility remains high in edgy global financial markets with the pound’s recent heavy slide adding to the jitters.
Japan still has scope to buy more of the currency, but its foreign currency reserves are not limitless.
With the US Federal Reserve set to keep raising borrowing costs while the Bank of Japan sticks with rock-bottom rates, the country needs to stay realistic about what it can do, analysts said.
“While spending a record amount to prop up the yen for a day shows the strength of their resolve, the ministry is also being careful not to use too many of its reserves at the start of this long battle,” said Takeshi Minami, chief economist at Norinchukin Research Institute, commenting on the smaller-than-expected amount.
“Even a basic calculation shows the ministry can do the same scale of intervention several times more,” Minami said.
The yen was 144.44 per US dollar in Tokyo yesterday, compared with 140.36 after last week’s intervention by the Bank of Japan on behalf of the ministry.
Japanese Minister of Finance Shunichi Suzuki has made clear that the nation is ready to act again against excessive speculative moves.
Japanese Vice Minister of Finance Masato Kanda has indicated that Japan is on guard against sharp moves in the currency rather than looking to defend a specific currency level such as 145.
Japan had about US$1.29 trillion of foreign reserves as of August, the ministry said.
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