Traders estimates last week Japanese authorities likely spent more than $30 billion in their second intervention in a month to support the yen after it plunged to a new 32-year low against the dollar.
The intervention carried out on Friday came after the yen touched ¥151.94 to the dollar, pushing it briefly to ¥144.50 during a typically quiet time of the week for trading. The yen closed around ¥147 on Friday.
During a visit to Australia last weekend, Japan’s prime minister, Fumio Kishida, said the government would take “appropriate steps” to address the excessive volatility in currency markets.
“We cannot tolerate excessive volatility caused by speculative trading. We are following developments in the foreign exchange market with a strong sense of urgency,” Kishida said, refusing to confirm whether an intervention was carried out on Friday.
Finance ministry officials did not say whether they carried out an intervention on Friday, but two people close to the government have confirmed the action has been taken. Authorities had already spent $20 billion in September to conduct Japan’s first yen-buying operation since 1998.
The Bank of America estimated after last month’s intervention that the Japanese government, which has $1.3 trillion in foreign reserves, could carry out up to 10 additional interventions by selling liquid assets.
Masato Kanda, the country’s top currency official, recently suggested that the government had an “unlimited” amount of money to carry out interventions, according to Japanese media.
But analysts say the effectiveness of such interventions would be limited as long as interest rate differentials between ultra-loose Japan and the tightening US remain wide. Japan is not alone in its struggle to respond to the sharp volatility in the financial markets, with regulators in Taiwan and South Korea also introducing market support measures.
Takahide Kiuchi, executive economist at Nomura Research Institute, said the latest intervention had a greater impact than expected due to several factors. Traders were surprised as they had expected the government to intervene during Tokyo trading hours rather than European and US market hours.
“There is also the possibility that the magnitude of the currency intervention was significant,” Kiuchi said without specifying the magnitude. Currency traders estimate that Japan spent at least $30 billion on the intervention.
Analysts said the move may have been accelerated by a report in the Wall Street Journal Federal Reserve officials were likely to debate next month whether or not to approve a smaller rate hike in December as global financial stress mounts amid sharp rate hikes.