Japan and US Jointly Intervene in Foreign Exchange Market

The US and Japan have intervened in the foreign exchange market for only the second time in 15 years, buying yen to counter excessive volatility. The joint action was aimed at addressing concerns over the yen's rapid depreciation, which has weakened the currency to a 40-year low against the dollar.

Data from the Bank of Japan indicates that Tokyo may have sold almost $59 billion of US dollars to buy yen when it intervened in New York markets on July 30. The intervention was followed by another joint action with Washington on July 31, where both sides 'will not hesitate to conduct further joint intervention'.

Currency experts warn that this temporary fix will not address the underlying causes of the yen's weakness. Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities, said 'currency intervention can only provide temporary relief without addressing the underlying causes.' The joint intervention came as the BOJ kept interest rates unchanged at its latest policy meeting.

Takahide Kiuchi, executive economist at the Nomura Research Institute, echoed Muguruma's views, stating that sustained yen strength requires improved economic fundamentals or weaker expectations of further US Federal Reserve rate hikes. To ease market concerns over Japan's fiscal outlook, Kiuchi suggested that the government should present a stable funding source for its planned consumption tax cut.