economy
Why Japan's $70 billion-plus intervention and a rate hike didn't prop up the yen more
Japan was willing to step in to defend the yen around the 160 level before, and it's at that point again.
TL;DR
- Japan has spent over 11.7 trillion yen ($72.8 billion) on foreign reserves to support the yen.
- The Bank of Japan raised policy rates to a more than three-decade high, but the yen still struggles around the 160 level against the dollar.
- Interventions and rate hikes have had limited effectiveness due to structural issues and the telegraphing of actions, reducing surprise.
- High U.S. bond yields make carry trades, borrowing in low-interest yen to invest elsewhere, attractive.
- Japan's political administration favors a reflationary stance, promoting easy monetary policy which clouds the outlook.
- High energy import costs, due to elevated prices from the Iran war, also pressure the yen as dollars are needed for purchases.
- Speculative short JPY positioning has increased, suggesting continued pressure on the currency.
- Longer-term factors like AI-related investment and foreign interest in Japanese equities may eventually support the yen.