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(Bloomberg) — Japan has the firepower to intervene 30 times in currency markets at last week’s scale, according to analysts at Goldman Sachs Group Inc., though officials are expected to conserve its reserves and step in at more effective moments.
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Authorities likely spent about ¥5 trillion ($31.3 billion) last Thursday to prop up the yen after it weakened past 160 against the dollar, Yuriko Tanaka, an economist at the Wall Street bank, wrote in a report late Friday. The intervention during relatively moderate volatility suggests policymakers view that level as the “line of defense,” she added.
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“Given the finite source of funds for FX intervention, we expect the MOF will aim to maximize the impact of each intervention, and cautiously select the most effective timing, such as when the yen is rapidly weakening,” she added.
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The intervention followed repeated warnings by officials and was the first since July 2024, when the yen had also crossed the 160 mark, and led to a surge in the currency. High energy costs and expectations that the spread between US-Japan policy rates won’t narrow anytime soon have led to pressure on the currency.
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What Bloomberg Strategists Say…
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Japanese authorities targeted the London-European session last week, but as the UK is on a public holiday on Monday, the attention will shift toward New York.
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— Mark Cranfield, MLIV. For full analysis, click here
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Going forward, the likelihood and scale of further moves to prop up the yen will depend on the pace of currency depreciation, market volatility and outright levels, Tanaka said. Japan holds about $1.2 trillion in foreign reserves as of the end of March, including $161.7 billion in foreign-currency deposits that can be used for intervention, with the remaining is held in foreign securities.
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—With assistance from John Cheng.
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English (US)