Japanese Authorities Intervene in Foreign Exchange Market

Japanese authorities are believed to have intervened in the foreign exchange market, selling US Treasury securities and putting downward pressure on the USD/JPY currency pair. This move follows a similar intervention in late April and comes as the dollar is already weakened after recent Fed news.

The sell-off in USD/JPY has been significant, with prices falling 3.5% on reportedly heavy volumes. According to market reports, this could mean that Japanese authorities have sold around $70 billion over a two-to-three day period.

However, there are limitations to Japan's intervention efforts. The country's foreign exchange reserves are finite, and another large sale of US Treasury securities would bring them close to the $1 trillion mark.

To see a lasting turnaround in USD/JPY, Japanese authorities may need the Fed to hold off on raising interest rates in September and for the Bank of Japan to adopt a more hawkish stance. However, ING analysts believe that a turn in USD/JPY will require the dollar to top out first.