Japan spends $73.7 billion to support the yen, and it’s barely working

Japan just dropped the equivalent of a mid-sized country’s GDP on propping up its currency. The yen kept falling anyway.

Between April 28 and May 27, Japan’s Ministry of Finance deployed 11.7349 trillion yen, roughly $73.7 billion, in direct foreign exchange intervention. It’s the first confirmed market action since 2024, and by far the most aggressive. Despite that historic spend, combined with the Bank of Japan hiking its policy rate to the highest level in over three decades, the yen remains parked near 160 per US dollar, a level not seen in four decades.

A war chest that isn’t winning the war

Japan’s underlying current is a persistent interest rate differential with the rest of the world. Even after the BOJ rate hike, Japanese rates remain far below those in the US and Europe. That gap makes the yen a funding currency for carry trades, where investors borrow cheaply in yen to park money in higher-yielding assets elsewhere. The more traders do this, the more yen gets sold, and the weaker it becomes.

The intervention was partially funded through the liquidation of foreign securities. Japan sold approximately $75.6 billion worth of holdings, including a significant chunk of US Treasurys, a figure that roughly matches the scale of the intervention itself.

Finance Minister Satsuki Katayama reinforced the message on July 3, stating that authorities “will respond appropriately at any time as needed.” Prime Minister Sanae Takaichi has echoed similar sentiments, with both officials reportedly maintaining close communication with US authorities on currency strategy.

Why the yen keeps sliding

Japan’s economy is heavily dependent on energy and food imports, both of which have become more expensive in recent years. A weaker yen makes those imports costlier, which feeds into domestic inflation, which creates pressure for even more intervention.

Global forex markets see roughly $7.5 trillion in daily turnover. Japan’s $73.7 billion spent in a single month, while historically large, represents a fraction of what moves through currency markets in any given week.

The crypto connection

Carry trades, where investors borrow in low-yielding yen to invest in higher-risk assets, have historically been a significant driver of liquidity flows into crypto. When Japan intervenes and the yen suddenly strengthens, those trades unwind. Traders scramble to buy yen back and sell whatever they purchased with the borrowed funds, including Bitcoin and other digital assets.

Bitcoin has maintained relative strength against the US dollar but has exhibited weakness when priced in yen terms, reflecting the impact of evolving carry-trade dynamics on crypto markets.

When a major sovereign seller dumps $75.6 billion in US government bonds in a single month, it puts upward pressure on US yields. Higher US yields typically strengthen the dollar and create headwinds for non-yielding assets like gold and Bitcoin.

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