Japan spent ¥2.84tn ($19.7bn) in last week’s intervention to stem the yen’s plunge, although the currency is once again trading near levels before the government action was taken.
Analysts say the government action was temporarily effective in reducing volatility in the trading of the dollar-yen pair and the yen’s collapse to a fresh 24-year low.
Still, the underlying factors driving the yen selling remain the same. The Bank of Japan has renewed its pledge to keep its ultra-loose monetary policy and is the only central bank in the world to hold its main interest rate at negative levels. The US Federal Reserve, meanwhile, is expected to continue aggressively raising interest rates to fight inflation.
The yen was trading at ¥144.6 to the dollar late on Friday after it briefly surged to ¥140.34 after the intervention was carried out. It had reached a low of ¥145.89 before the intervention.
The figure, released by the finance ministry (MoF) on Friday, covers the period from August 30 to September 28 but market participants say they believe the amount was spent entirely on September 22 when Japan conducted its first yen-buying intervention since the late 1990s.
It was lower than the upper range of market estimates at ¥3.6tn, but it likely topped the previous one-day record of ¥2.6tn Japan spent on intervention in April 1998.
With $1.3tn in foreign reserve assets, Bank of America analysts suggested that the government could execute up to 10 more interventions by selling liquid assets if it used $136bn in deposits and $148bn in securities with maturity of less than one year.
Last week’s intervention was the first yen-buying operation since 1998, helping to amplify its effects on markets, but BofA said the impact of announcements was likely to decline over time as Japan uses more of the liquid assets left in the reserves.
“Co-ordinated intervention could have a stronger impact, but given the red-hot US labour market and elevated inflation, we think the likelihood is low,” added analysts at BofA.
JPMorgan analysts also said the currency intervention was unlikely to slow yen depreciation over the long-term unless the gap in interest rate differentials narrowed. “In this context, we think moves by the MoF and BoJ are intended to buy time over the next few months until Japan’s economic conditions justify BoJ policy normalisation,” they added.