The Japanese government's "intervention hand" once again reaches the foreign exchange market! The Ministry of Finance is suspected of adding an additional $30 billion to support the Japanese yen.

According to the latest analysis report by Wall Street analysts on the Bank of Japan's accounts, the Japanese fiscal authorities may have used approximately $30 billion in forex intervention just a few days after a previous intervention of around $25 billion at the end of April. This is the latest indication of the Japanese Ministry of Finance's strong support for the yen exchange rate. According to a comparison between the official account of the Bank of Japan and the forecasts of currency broker dealers released on Thursday, the Japanese authorities' intervention in the market may be around 4.68 trillion. Thursday was the first working day after the Golden Week holiday in Japan that ended on Wednesday. The Japanese government seems to be upgrading the "defense of the yen" from a one-time forex market intervention to a continuous, selective, and coherent management of exchange rate defenses. Based on a similar calculation using the revised official account data of the Bank of Japan on Thursday, the Japanese fiscal authorities may have spent approximately 3.86 trillion (equivalent to $25 billion) supporting the yen on April 30 (last Thursday). While many analysts believe that this round of forex market interventions by the Japanese government may exceed the IMF's limit of "three interventions in a six-month period", it is unclear from the latest data whether multiple interventions have occurred since last weekend, and it is also unclear on which day or days such large-scale intervention actions may take place. However, the sharp rise in the yen exchange rate on Wednesday is one of the trends that has led financial market traders to speculate that officials may intervene in the market again. Thursday's official report highlights the determination of the Japanese Ministry of Finance to curb the forces of speculators betting on a decline in the yen and prevent the yen from falling again below the key threshold of 160 against the U.S. dollar - a level close to the USD/JPY level when Japanese officials intervened multiple times in 2024. Tsuyoshi Ueno, chief economist at NLI Research Institute, said that these data indicate that the government may intervene in the market on Friday, followed by another intervention between Monday and Wednesday. "This round of intervention seems to have had a significant effect, as fears and threats still prevail in the market, and forex traders remain highly vigilant," Ueno said. Visit of Bessent However, this move shows that Tokyo is forced to continue pouring large amounts of funds in order to contain speculators who are continuously shorting the yen. It also comes at an awkward time, as U.S. Treasury Secretary Scott Bessent is set to visit Japan. While Bessent's supportive statements on intervention during a period of yen weakness in January helped Japan strengthen the yen, he has hinted that a faster rate hike by the Bank of Japan is the most effective way to stabilize the yen exchange rate. The next monetary policy meeting of the Bank of Japan will be held in June. According to overnight swap pricing, the market currently anticipates a 72% probability of the Bank of Japan raising rates at that time; however, before that, Japanese finance officials still need to keep speculators' sentiments in check with respect to shorting the yen. In this sense, the latest intervention will only buy Japan more time and will not change the fundamental monetary policy and economic fundamentals behind the weakening of the yen and the strengthening of the dollar. The economic backdrop and the hawkish stances of international central banks like the Federal Reserve and the European Central Bank continue to favor the appreciation of the dollar and other major sovereign currencies. Even though markets hope for a de-escalation of the conflict in Iran, energy prices remain near historic highs, and the Fed does not seem closer to another round of rate cuts. "The psychological battle between Japanese authorities and market speculators and yen carry trade participants will continue," Ueno said. By late Thursday Tokyo time, the USD/JPY exchange rate was around 156.36. The yen rate had soared on Wednesday to reach a 10-week high of 155.04 (indicating a depreciation of the dollar and an appreciation of the yen). Within a week since the start of the recent intervention at the end of April, the yen rate has experienced several sharp rebounds. Ready for Action? Japan's top foreign exchange official, Atsushi Mimura, said earlier on Thursday that with speculative trends continuing, authorities are prepared to take intervention action again. The Japanese side is ready to take measures from "all angles" and is closely monitoring the market with a sense of urgency. However, he did not comment on the exchange rate movements on Wednesday or whether the Ministry of Finance had intervened again after April 30. Without any intervention, major currency broker dealers like Tokyo Tanshi, Central Tanshi, and Ueda Yagi Tanshi had originally predicted a significant increase of 166.7 billion in the Bank of Japan's current account on Friday. However, the official data released by the Bank of Japan on Thursday showed that the Bank expected its current account to decrease by 4.51 trillion, indicating another intervention after April 30 that was significantly higher than this figure. Finance Minister Takashi Yasutaka and exchange affairs official Mimura have mentioned their close coordination with the U.S. Treasury on currency issues several times. They may hope that Bessent does not call for faster action by the Bank of Japan during his visit. "If Bessent expresses understanding of the recent official intervention actions in the forex market by the Japanese fiscal authorities, it would be a perfect situation for the Japanese side," said Ueno, chief economist at NLI Research Institute. The Japanese government seems to be upgrading the "defense of the yen" from one-time interventions to continuous, selective, and deterrent exchange rate management. Mimura's so-called "measures from all angles" to counter speculation essentially tells the market that the Ministry of Finance does not recognize fixed defense points but will accurately strike back against rapid, one-sided speculation and exchange rate impacts during holidays or periods of thin liquidity. With the yen sharply rising multiple times during the Golden Week holiday, especially reaching a 10-week high of 155.04, it suggests that the intervention strategy resembles a "ambush-style liquidity management" - using a smaller amount of funds to leverage larger exchange rate fluctuations when market depth is thinner, thus increasing the cost of shorting the yen. The Ministry of Finance is using intervention to suppress short positions on the yen, but the real determinant of the yen's trend remains interest differentials and policy credibility. If the USD/JPY approaches 160 again, Japan is likely to intervene; however, without clearer expectations of a rate hike by the Bank of Japan, a decline in U.S. yields, or a improvement in the energy bill, intervention is more likely to create short-term sharp rises and high volatility, rather than initiate a medium-term reversal of the yen. However, from a macro trading mechanism perspective, intervention can only alter short-term trading paths and is difficult to single-handedly reverse the root causes of yen weakness. Pressure on the yen still comes from the U.S.-Japan interest differential, energy import bills, expectations of loose fiscal policy, and Japan's low real interest rates; if the Bank of Japan does not cooperate with a more clear rate hike path, relying solely on the Ministry of Finance to sell dollars and buy yen is essentially counteracting interest differential trades with foreign reserves. Traders from Goldman Sachs believe Japan theoretically still has the ability to intervene on a scale similar to last week about 30 times, but the likelihood is that Japanese finance officials will conserve ammunition and choose the most impactful opportunities to intervene, indicating that "having ample firepower" does not equate to "unlimited intervention."