Japan has a long history of intervening in foreign exchange markets to influence the value of the yen, particularly to prevent excessive appreciation that could harm its economy. The Bank of Japan (BOJ) has employed various strategies over the years, including selling yen and purchasing foreign currencies, sometimes in coordination with other central banks.
Historical Interventions
The BOJ’s interventions date back to at least 1991-1992, when it sold dollars to support the yen. Further intervention occurred during the Asian financial crisis of 1997-1998, again aimed at bolstering the yen’s value. In 2004, the BOJ engaged in a 15-month intervention campaign, spending over 35 trillion yen—more than $300 billion—to curb the yen’s rise.
More recently, in September 2010, Japan intervened in the currency market for the first time in six years, selling yen as the dollar reached a 15-year low of 82.87 yen.
Recent Yen Depreciation and Potential Intervention
In 2024, the yen experienced significant depreciation, falling by 12% to ¥160.39 per dollar. This weakening of the yen has led to increased costs for essential imports like fuel, food, and raw materials for Japan, which are then passed on to consumers, contributing to rising inflation. Japan’s core inflation rate has remained above the central bank’s target for 27 consecutive months.
The critical ¥160 level against the dollar has raised the stakes for the Bank of Japan, prompting speculation about potential intervention to stabilize the currency.
Impact of a Weak Yen
While a weaker yen can benefit Japanese exporters, it presents challenges for the broader economy. The increased cost of imports, particularly essential goods, impacts both businesses and households. Rising fuel costs are a significant driver of core inflation, putting pressure on the Japanese economy.
Methods of Intervention
Japan typically intervenes by purchasing dollars and selling yen on foreign exchange markets. These interventions are sometimes coordinated with other central banks and governments to achieve a more stable exchange rate. The BOJ has a long history of using this method to prevent excessive yen appreciation, which it views as detrimental to the nation’s economic health.