The yen experienced a sudden surge on May 6, climbing from around 157.8 to the US dollar to 155 in a half hour of holiday-thinned trade, marking at least the fourth sudden unexplained jump in the yen in the past five sessions. According to Reuters, sources told the publication that authorities intervened last week and money market data suggests they sold about $35 billion (₹2,900 crore). Against the Singapore currency, the yen jumped 0.7 per cent to 122.94 per Singapore dollar as at 4.05pm Singapore time from its previous day's close. The yen has gained about 0.9 per cent in the past month, with analysts noting that "it's possible the authorities decided that was a good moment to give the yen an extra nudge," as the US dollar fell broadly on hopes of resolution to the US-Iran stand-off in the Strait of Hormuz.
Japan is wagering that a hawkish shift at the Bank of Japan and an endorsement from US Treasury Secretary Scott Bessent can provide additional momentum for yen-buying intervention efforts. Governor Kazuo Ueda's hawkish pivot last month marked an inflection point, bringing the central bank into rare alignment with the Ministry of Finance and presenting markets with a more unified front as authorities seek to arrest the yen's decline. According to Reuters, two days after Ueda's remarks on April 28, the MOF conducted its first yen-buying intervention in nearly two years, followed by several bouts of action in May. Having supposedly spent nearly ₹5,000 crore ($63.7 billion) in the current round of interventions, analysts say Tokyo may be counting on Bessent's visit to Japan next week to deliver an additional jolt, whether through explicit endorsement or carefully chosen words that signal US tolerance for Japan's actions. Traders at agent banks have been standing by to get intervention orders throughout Japan's Golden Week holiday period, one market source told Reuters.
The Federal Reserve's custody holdings of Treasuries fell for the first time in a month, declining by $8.7 billion to $2.73 trillion in the week ending May 6, according to central bank data. This drop coincided with Japan's Ministry of Finance spending approximately $54.7 billion to buy yen during the same period, as reported by Bloomberg. Market participants are debating whether Japan may have offloaded US securities to fund its currency intervention activities. The BOJ's ability to draw on reserves held with the New York Fed allows Japan's authorities to carry out operations during US trading hours when Treasury market liquidity is at its peak.
Despite the intervention activity, the exchange rate was soon back to 156.4 to the US dollar, suggesting that any intervention was being resisted by the market. As noted by Reuters, "It is obviously an intervention," said executive adviser Yuji Saito at SBI FX Trade in Tokyo. "Taking into account high energy prices and Japan running substantially negative real interest rates, plus the dollar being in demand, Tokyo cannot expect a sustained drop in USD/JPY," said Chris Turner, ING's global head of markets. Analysts expect the intervention impact to be temporary and some investors have eyed drops in the dollar/yen rate as an ideal entry point for shorting the Japanese currency and opening "carry trades" which profit from interest rate differences. A weak yen is pushing up inflation and living costs in Japan, and officials say the drag on the economy is becoming palpable, creating additional pressure for continued intervention efforts.
The BOJ acts as the Ministry of Finance's agent to execute any foreign-exchange intervention, with the New York Fed in January having requested indicative quotes on the yen exchange rate, triggering a jump in Japan's currency. Top currency diplomat Atsushi Mimura said on Thursday that Tokyo was in daily contact with US authorities, adding that his counterparts "fully understand our thinking and our actions." Past intervention episodes show no notable decline in the cash component of Japan's foreign-exchange reserves, according to Shusuke Yamada, foreign-exchange and rates strategist at Bank of America. Once Bessent leaves Tokyo, the burden shifts back to the BOJ in backing MOF's yen-stabilizing efforts, with the central bank scheduled to deliver a closely watched speech on June 3 ahead of the June 15-16 policy meeting where markets are debating whether policymakers will lift rates to 1.0 percent from 0.75 percent. The wild card would be whether the US Treasury gets involved, which is a possibility after an unusual "rate check" on yen prices by the New York Federal Reserve in January, with joint US-Japanese intervention potentially being far more significant than solely Japanese intervention.
