Yen Intervention Fails to Stem Decline

The Japanese yen's recent performance has sparked debate among economists. One camp believes that Japan's large foreign-exchange reserves enable the government to intervene effectively in markets and correct irrationality, leading to a more rational exchange rate.

However, another perspective argues that the Bank of Japan's efforts to suppress yields on Japanese government bonds have driven the yen's decline. This could trigger a debt crisis if yields rise freely, so the bank keeps them in check by keeping the yen weak.

A chart shows the USD/JPY exchange rate over time, with intervention points marked. Despite interventions this year, including one as recently as September 3, the yen has failed to hold above the critical level of 160.