Japan's Yen Intervention a Costly Lesson for India

Japan's efforts to stabilize its yen against the US dollar have raised questions about the effectiveness of currency intervention. The Japanese government has spent over $100 billion buying up yen, with some estimates suggesting as much as $150 billion has been spent since January.

This year alone, Japan's finance ministry purchased $73 billion worth of yen in April and May to prop up its sliding currency against the dollar. However, the intervention provided only a temporary reprieve, and the yen eventually fell to 163 to the dollar in July, triggering another joint intervention by the US treasury and Japan's finance ministry.

The US government reportedly used its euro reserves to purchase yen, pushing the currency up to 155 to the dollar. However, less than two weeks later, almost half of the yen's gains from the intervention had evaporated.

The lesson for India, according to some economists, is that fighting the market can be a costly and wasteful exercise. Instead of trying to manage the exchange rate, India should focus on macroeconomic fundamentals and keeping its economy in sound shape.