Yen Volatility Raises Risk of Japanese Government Intervention

The Japanese yen experienced significant volatility against the US dollar on Friday after the Bank of Japan (BOJ) decided to maintain its near-zero interest rate policy. Analysts warned that the yen’s fluctuating movements could prompt Japanese authorities to intervene to stabilise the currency.

The yen initially strengthened to 154.99 against the US dollar, rebounding from 156.82 in the late afternoon trading hours in Tokyo. However, it fell back to 156.55 soon after. Earlier in the day, the currency had hit a new 34-year low following the BOJ’s announcement that it would keep its overnight interest rate within a range of zero to 0.1 percent, with policymakers unanimously agreeing to continue the existing guidance.

The yen’s instability recalls Japan’s intervention in September and October 2022, when it directly stepped in to support the currency for the first time since the late 1990s. This history of intervention has led to concerns that authorities might be compelled to act again if the yen’s weakness continues to pose risks to Japan’s economy and international trade.

The BOJ’s policy choice to maintain low interest rates has contributed to the yen’s depreciation, with the currency reaching record lows against major world currencies. As Japan’s government and central bank navigate this challenging environment, analysts are closely monitoring the yen’s movements, suggesting that any further sharp declines could trigger government action to stabilise the market.