Currency Intervention Strategy
MOF's currency intervention operations: 2022-2025 case studies, effectiveness analysis, and intervention economics
Recent Intervention History (2022-2025)
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Vertical lines mark MOF intervention dates. Sept 2022: ¥2.8T, Oct 2022: ¥6.3T, Apr-May 2024: ¥9.8T, Jul 2024: ¥5.5T.
After 24 years without FX intervention (1998-2022), Japan returned to active currency management in 2022 as yen weakness accelerated. The interventions provide real-world case studies of reserves deployment:
September 22, 2022: Breaking the Silence
| Date | September 22, 2022 (evening, Tokyo time) |
|---|---|
| USDJPY Movement | ¥145.90 → ¥140.36 (5.5 yen strengthening in minutes) |
| Amount | ¥2.8 trillion ($19.6 billion) |
| Context | First intervention since June 1998. Yen had weakened 25% YTD due to Fed hiking (3.0%) while BOJ maintained ZIRP/YCC. PM Kishida publicly supported MOF action |
| Effectiveness | Temporary. USDJPY rebounded to ¥145 within days, then continued to ¥151 by month-end. Intervention slowed momentum but couldn't fight rate differentials |
October 21-24, 2022: Historic Barrage
| Dates | October 21, 24, 2022 (multiple operations over 4 days) |
|---|---|
| USDJPY Movement | ¥151.95 (32-year low) → ¥146.20 |
| Amount | ¥6.3 trillion ($42.3 billion) - largest intervention month on record |
| Context | USDJPY breached ¥150 psychological level despite Sept intervention. BOJ maintained 10Y YCC cap at 0.25%, widening gap vs UST 4.0%. Market tested MOF's resolve |
| Effectiveness | Limited. Yen stabilized near ¥145-150 range through year-end, but intervention alone couldn't reverse trend. Total 2022 spending: ¥9.2T ($63B) |
April-May 2024: Suspected “Stealth” Operations
| Dates | April 29 - May 1, 2024 |
|---|---|
| USDJPY Movement | ¥160.17 (34-year low, April 29) → ¥153.80 (May 3) |
| Amount | ¥9.8 trillion ($62 billion confirmed via MOF data) |
| Context | Yen hit new multi-decade lows as Fed held rates at 5.25-5.50% while BOJ raised to just 0.10% (March 2024 YCC exit). Sudden sharp moves suggested intervention. MOF official: "We will take appropriate steps against excessive moves" |
| Effectiveness | Modest. USDJPY stabilized around ¥155-156 but remained weak. Market awaited BOJ policy action, not just MOF intervention |
July 11-12, 2024: Coordinated Policy Strike
| Dates | July 11-12, 2024 |
|---|---|
| USDJPY Movement | ¥161.76 (all-time dollar high) → ¥153.20 |
| Amount | ¥5.5 trillion ($34 billion) |
| Context | Coordinated with BOJ policy: July 31 BOJ hiked rates 0.10% → 0.25% and announced QT acceleration. Two-pronged approach: MOF intervention + BOJ tightening aligned |
| Effectiveness | Successful. Yen strengthened sharply to ¥145 by early August as carry trades unwound. Combination of intervention + rate hike + market positioning reversal created sustainable move |
2025 Update: Intervention Pause
As of October 2025, Japan has not conducted any FX interventions in calendar year 2025. Key factors explaining the pause:
- BOJ Normalization Progress: BOJ raised policy rate to 0.50% (January 2025) and held steady at 0.50% (July 2025), narrowing the rate differential with the Fed (which cut to 4.00%-4.25% as of October 2025). USDJPY stabilized around ¥145-150
- Reduced Volatility: Without the extreme rate differentials of 2022-2024 (5.5% Fed vs 0.1% BOJ), yen movements have been more orderly. No "excessive" one-sided trends triggering intervention thresholds
- Intervention Fatigue: Total 2022-2024 spending of ¥24.5T ($159B) demonstrated limits of unilateral action. MOF shifted focus to coordination with BOJ policy rather than solo currency defense
- G7 Scrutiny: US Treasury's 2024 FX report criticized Japan's interventions as inconsistent with G7 norms (intervening only to weaken, never to strengthen, raises "competitive devaluation" concerns). MOF exercises caution
The Economics of Intervention: P&L and Carry Analysis
Intervention P&L: Did Japan Make or Lose Money?
Evaluating intervention "success" requires looking beyond immediate USDJPY moves to mark-to-market P&L:
Simplified P&L Formula
When MOF buys yen (sells USD reserves):
P&L (JPY) = USD_sold × (Entry_rate - Current_USDJPY_rate)
Example: Sept 2022 intervention sold $19.7B at USDJPY ¥145. If yen later strengthens to ¥140, MOF realizes a gain: $19.7B × (¥145 - ¥140) = ¥98.5 billion profit. But if yen weakens to ¥151 (as it did), MOF faces mark-to-market loss: $19.7B × (¥145 - ¥151) = -¥118 billion loss.
Actual 2022 Intervention Outcome:
- Sold: $62 billion total (Sept + Oct 2022) at average ~¥147
- By Year-End: USDJPY closed 2022 at ¥131 (yen strengthened due to BOJ YCC tweak in Dec). MOF's intervention became profitable: $62B × (¥147 - ¥131) = ¥992 billion gain
- But Then: Yen weakened again in 2023-2024 (back to ¥160), erasing theoretical profits. Intervention "worked" only because BOJ eventually changed policy, not because intervention itself turned the tide
2024 Interventions: Sold ~$98B at average ¥158. By August 2024, USDJPY strengthened to ¥145 (BOJ rate hike effect), generating ~¥1.3T gain on paper. As of October 2025 (USDJPY ¥148), still showing modest profit.
Carry Analysis: The Structural Profit Machine
Beyond intervention P&L, Japan's FEFSA generates consistent profits from positive carry—earning more on USD assets than paying on JPY liabilities:
| Component | Rate / Yield | Annual Income/Cost (Est. 2025) |
|---|---|---|
| USD Reserve Assets ($1.34T) | 4.5% (weighted avg: UST 2-10Y yields) | +$58.5 billion income |
| JPY Liabilities (FBs ~¥200T) | 0.5% (3-12M FB rates) | -¥1.0 trillion cost (-$6.7B) |
| Net Carry (before FX moves) | ~$52 billion / ¥7.8 trillion annual profit | |
Key Insights:
- Rate Differential = Free Money: As long as USD yields exceed JPY funding costs by 4%, Japan earns ~$50B+ annually just from holding reserves. This is 0.9% of GDP in passive income
- BOJ Normalization Impact: If BOJ raises rates to 2% by 2027 and FB rates rise to 1.8%, carry would shrink to ~2.7% ($35B). Still profitable, but less lucrative
- Why Intervention is "Affordable": Even if interventions lose money on FX moves (as 2022 did initially), the annual carry income offsets losses. FEFSA has been profitable every year since 2000
- Transfer to General Account: FEFSA's annual profits (¥5-10T depending on FX moves) are transferred to Japan's general budget, effectively subsidizing fiscal spending. This creates political incentive to maintain large reserves
References and Data Sources
Official Data:
- Bank of Japan: "Foreign Exchange Intervention Operations" (monthly intervention amounts). Available at: https://www.boj.or.jp/en/statistics/br/fxdaily/index.htm
- Ministry of Finance, International Bureau: "Japan's Foreign Exchange Reserves" (monthly statistical release). Available at: https://www.mof.go.jp/english/policy/international_policy/reference/official_reserve_assets/index.htm
Academic and Policy Research:
- Dominguez, Kathryn M., and Jeffrey A. Frankel. "Does Foreign Exchange Intervention Matter? The Portfolio Effect." American Economic Review 83, no. 5 (1993): 1356-1369.
- Ito, Takatoshi. "Interventions and Japanese Economic Recovery." International Economics and Economic Policy 2 (2005): 219-239.
- Fratzscher, Marcel, Oliver Gloede, Lukas Menkhoff, Lucio Sarno, and Tobias Stöhr. "When Is Foreign Exchange Intervention Effective? Evidence from 33 Countries." American Economic Journal: Macroeconomics 11, no. 1 (2019): 132-156.
Market Data and Analysis:
- Bloomberg Terminal: Historical USDJPY rates, JGB yields, Financing Bill rates
- Reuters Eikon: Real-time FX intervention monitoring and market commentary
Further Reading:
- For MOF-BOJ operational relationship in FX intervention, see Section 2.15: The MOF-BOJ Relationship
- For FX reserves composition and FEFSA mechanics, see Section 2.16: Japan's Foreign Exchange Reserves
- For structural drivers of yen weakness, see Section 3.2: Structural JPY Weakness
- For BOJ monetary policy history and YCC framework, see Section 3.3: History of Japan's Monetary Policy