Japan reportedly conducted a large-scale yen-buying operation using around $35 billion, driving the USD/JPY rate down nearly 3% to 155.5. Bank of Japan data supports the intervention's scale, which would mark the first official action in nearly two years if confirmed. The move highlights Tokyo's limited tolerance for ongoing yen weakness amid rising import costs.
Tokyo's currency intervention shook markets. Officials stepped into the foreign exchange market with approximately $35 billion in yen purchases, according to Bank of Japan money-market data. This sent the dollar plunging nearly 3% against the yen to 155.5. Once confirmed by the Ministry of Finance's monthly release, the operation would rank as Japan's second-largest on record and its first official yen-support effort in almost two years. The action followed the Bank of Japan's decision to hold its policy rate at 0.75% on April 28, despite dissent from three board members pushing for 1% (CryptoSlate, May 2). The U.S. Federal Reserve similarly maintained its rate at 3.50%-3.75% on April 29. This wide interest rate spread of 275 to 300 basis points continues to fuel yen carry trades, where investors borrow cheaply in yen to invest in higher-yielding assets. Broader implications loom for global markets. Yen-funded carry trades, estimated by UBS at up to $500 billion before partial unwinds, involve hedge funds holding short yen positions to fund distant assets. A sudden yen strengthening forces coverage of shorts, potentially triggering sales in liquid holdings like Bitcoin. BIS data shows the yen's role in 16.8% of worldwide forex trades, amplifying its global reach. CFTC data from April 21 indicated leveraged funds held 148,717 short yen futures contracts, up sharply week-over-week. Bitcoin faces potential fallout. Traders warn that yen squeezes could prompt leveraged funds to sell Bitcoin for liquidity, as seen in an August 2024 episode when it dropped 13%. Bitcoin traded near $78,000 to $79,000 on May 1. Analysts note historical dollar softening from such interventions often benefits risk assets long-term, though short-term volatility persists without Bank of Japan rate hikes. Reuters reported 65% of economists in an April 16 poll expect a 1.0% rate by end-June 2026.
