Japan spent record-breaking $42.8 billion to bolster yen in October

The Japanese government spent a record-breaking $ 42.8 billion on propping up yen by conducting currency interventions in October, as reported by the finance ministry. 

A total of $42.8 billion (6.35 trillion yen) was close to what Tokyo brokers had predicted. According to their estimates, Japan burnt through up to 6.4 trillion yen during the interventions that lasted two consecutive trading days. They were conducted unannounced. 

On October 21, yen touched a 32-year low of 151.9 against U.S. dollar, which probably was the driving force for the intervention. Traders suspect that the intervention also took place on October 24.

Japan spent 2.8 trillion yen supporting the currency in September, which is almost half the amount spent during the recent currency interventions. The Central Bank intervened to buy the yen and sell the dollar in September for the first time since 1998. 

The interventions resulted in a decline in the dollar of more than 7 yen on October 21. In addition to this, the dollar temporarily slipped to the yen by around 5 yen on October 24.  This caused the Japanese currency to be under renewed pressure.

According to Daisaku Ueno, chief FX strategist at Mitsubishi UFJ Morgan Stanley Securities, the money spent on intervention, to some extent, was worth it. Japan's intervention in market processes was indecent. The authorities stepped into markets when market conditions were sluggish, on late Friday evening and early Monday morning.

As stated by Daisaku Ueno, based on this, we can conclude that the Japanese government will continue to intervene in markets, selling the yen above 150 against U.S. dollar.

In October, Japan spent tens of billions on unannounced currency interventions. The finance ministry didn’t announce a currency-intervention program, so the new figures attracted special attention. By contrast, it announced a return to the policy of buying the yen in September.

Market participants are closely watching how ready Japan is to intervene. However, hardly any of them doubt that — at least in the near term — it will not have enough resources to intervene in the market.

Japan’s foreign reserves were about $1.2 trillion at the end of September, marking the world’s second-largest reserves after China. About one-tenth of the reserves are held in deposits with foreign central banks and the Bank for International Settlements and can be used during currency interventions. 

Furthermore, about 80% of Japan's total foreign reserves are held as U.S. Treasury bonds, purchased during dollar-buying interventions during the appreciation of the yen. They can easily be converted into cash.