- Japan is reportedly using its dollar reserves to prop up the falling yen.
- The yen's depreciation is largely due to high US interest rates attracting investors.
- The US may step in to assist Japan, but the problem lies with the strong dollar.
Japan's yen has been on a sustained slide against the dollar, a slump that's great for foreign tourists looking for cheaper travel but could prove disastrous for its economy.
Now, it looks like Japan is tapping into its vast hoard of dollars to help the yen, which has fallen 13% against the greenback in the last year — and the US may get involved, too.
It appeared that Japan spent nearly $35 billion to prop up the beleaguered yen on Monday and returned to the markets late in the US trading day on Wednesday, Bloomberg reported.
After a surge late Wednesday that traders attributed to central bank action, the yen dropped 0.5% against the dollar to 155.30 on Thursday, per Reuters.
This week's operation was the first Japanese currency intervention since 2022, when the government spent around $60 billion.
Japan doesn't typically comment on trading, and an official told Bloomberg on Thursday that data will be available at the end of the month. Former top Japanese finance official Mitsuhiro Furusawa told Reuters on Tuesday it was highly likely Japan had intervened.
But the currency remains near its weakest exchange rate, compared with the dollar. The US may step in to aid its ally, with more "specific" and "public" talk, former Goldman Sachs chief economist Jim O'Neill told Bloomberg.
In mid-April, the finance ministers of the US, Japan, and Korea met and issued a statement about their joint work, including about Japan and Korea's "serious concerns" over currency depreciations.
"At some point, it will come to a head as it is also reasonably clear that the Bank of Japan and Japanese officials won't want a continuous decline in the yen," O'Neill told Bloomberg. "Nor will the rest of Asia, Beijing included, which also probably means the US Treasury won't be too pleased either."
Japan's currency has been depreciating largely due to high US interest rates, which make the dollar more attractive to investors, compared with Japan's near-zero interest rates.
A historic rate hike in Japan last month — the first since 2007 — did little to reverse the downward trend, indicating that investors are more concerned about US monetary policy than that in Japan.
Japan had about $1.1 trillion in foreign currency reserves at the end of March, according to the finance ministry's most recent data.
