Japan made intervention of at least $30bn to prop up yen

Japanese authorities are likely to have spent more than $30bn last week in their second intervention in a month to prop up the yen after it fell to a fresh 32-year-low against the dollar, according to estimates by traders.

The intervention conducted on Friday came after the yen hit ¥151.94 to the dollar, causing it to briefly surge 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 over the weekend, Fumio Kishida, Japan’s prime minister, said the government would take “appropriate measures” to address excessive volatility in currency markets.

“We cannot tolerate excessive volatility caused by speculative trading. We are watching developments in the foreign exchange market with a strong sense of urgency,” Kishida said while declining to confirm if an intervention was carried out on Friday.

Finance ministry officials have not commented on whether they had conducted an intervention on Friday, but two people close to the government confirmed that the action was taken. Authorities had already spent $20bn in September conducting Japan’s first yen-buying operation since 1998.

The Bank of America estimated after last month’s intervention that the Japanese government, which has $1.3tn in foreign reserves, could execute up to 10 more interventions by selling liquid assets.

Masato Kanda, the country’s top currency official, recently suggested that the government had a “limitless” amount of funds to conduct interventions, according to Japanese media.

But analysts say that the effectiveness of such interventions would be limited as long as the interest rate differentials between ultra-loose Japan and the tightening US remained wide. Japan is not alone in its struggle to respond to sharp volatility in financial markets with both regulators in Taiwan and South Korea also introducing market-supporting measures.

Takahide Kiuchi, executive economist at Nomura Research Institute, said the latest intervention had a bigger impact than expected due to several factors. Traders were surprised because they had expected the government to intervene during Tokyo trading hours instead of during European and US market hours.

“There is also the possibility that the size of the currency intervention was significant,” Kiuchi said without specifying the size. Currency traders estimated that Japan spent at least $30bn in the intervention.

Analysts said the move may have been precipitated by a report in the Wall Street Journal that Federal Reserve officials were likely to debate next month on whether to approve a smaller rate increase in December as global financial stress mounts because of the sharp rate hikes.