Japan may have deployed as much as 5.48 trillion yen, equivalent to roughly $35 billion, in yen-buying operations to support its currency, according to central bank projections published on Friday. The Bank of Japan's forecast of money market conditions for the next trading day - May 7 - showed a net outflow of 9.48 trillion yen, a gap that market participants and analysts view as consistent with large-scale yen absorption by the BOJ.
Major money market firms had been expecting a drawdown in the range of 4 trillion to 4.5 trillion yen, making the BOJ's projection notably larger than those estimates. Because yen-buying activity requires the central bank to absorb yen liquidity from markets, an unexpectedly large shortfall in funds can serve as an indirect indicator of intervention magnitude.
Reports indicate that Tokyo intervened on Thursday to arrest a sharp selloff in the yen. Sources familiar with the matter said the action was intended to support the currency against the U.S. dollar as the yen came under renewed pressure. The selloff was intensified by a recent rise in oil prices that has been linked to the Iran war, according to the same reporting.
This episode follows Japan's most recent currency operation in July 2024, when authorities spent about $36.8 billion after the yen weakened to a 38-year low of 161.96 per dollar. For reference, the exchange rate used in the central bank projection was $1 = 156.5500 yen.
Taken together, the money-market projection and reports of intervention point to a substantial central bank footprint in the FX market on Thursday. Analysts and market participants will watch incoming official data and subsequent money-market reports closely to refine estimates of how much was actually deployed.
Key points
- BOJ's money-market projection for May 7 showed a 9.48 trillion yen net outflow, implying significant yen absorption.
- Market forecasts from major firms expected a 4 trillion to 4.5 trillion yen drawdown, considerably lower than the BOJ's projection.
- Reports say Tokyo intervened on Thursday to support the yen amid a selloff exacerbated by a spike in oil prices linked to the Iran war.
Risks and uncertainties
- The precise scale of yen-buying operations is uncertain; outsized shortfalls in funds provide clues but are not definitive proof of the total amount spent.
- Market projections and firms' forecasts diverge significantly, leaving ambiguity about liquidity conditions and the timing of interventions.
- Continued volatility in oil prices related to the Iran war could keep pressure on the yen and trigger further market moves.