coins and banknotes of japanese yen are seen in this illustration picture taken june 16 2022 reutersflorence loillustrationfile photo londontokyo sept 22reuters  japan intervened in the foreign exchange market on thursday for the first time since 1998 to shore up the battered yen in the wake of the central banks decision to maintain ultralow interest rates that have hammered the currency nl1n30s30x we have taken decisive action in the exchange market vice finance minister for international affairs masato kanda told reporters responding in the affirmative when asked if that meant intervention the yen jumped by as much as 22 against the us dollar to around 14031 yen after the announcement the bank of japans commitment to superlow interest rates had weighed on the japanese currency which has lost 22 in value this year earlier on thursday the currency hit a 24year low of 14590 against the dollar it was last up 09 on the day against the dollar at 14287 and up 05 against the euro at 140965 there are two things from here one how the us counterpart responds and two what prime minister fumiokishida says about it i think its hard for japan now to get a welcoming message from the us on intervention while the boj is not changing their easing bias and the us wants the dollar to be strong to curb inflation without moving away from abenomics the policy doesnt change from weakening the yen and the effect may be shortlived in short i think this intervention is probably done by japan alone without the backing of the us and perhaps without the backing of the boj only when kishida appoints a new governor to the boj thats when a strong message can be sent to the market “with the tokyo market closed tomorrow on a national holiday and the boj’s decision to maintain policy today there was an increasing risk of the yen sliding further in a thin market the government intervened at the very last minute this evening after the rate hit the line that prompted the rate checks last week and before the market can get volatile” “the line of 145146 yen per dollar will be seen as the ceiling for a while but the next fomc is looming in just over a month and the us fed keeps up with rate hikes much remains uncertain about the fed’s course depending on indicators coming till then if the fed’s rate hike is seen accelerating the risk of further yen weakening is of course remaining” “we must check the us treasury department’s response – if they issue comments that signal some level of understanding on the yen’s rapid weakening and the japanese government’s action then the risk of further yen decline will be smaller otherwise japan wouldn’t be able to take the step again” “the first japanese currency intervention in near a quarter century is a significant but ultimately doomed step to defend the yen it has been the dramatic currency outlier this year losing over 20 of its value versus the dollar but this has been fundamentally driven with japanese interest rates rockbottom and economic growth sluggish as long as the fed stays on the hawkish rateraising front foot any yen intervention is likely to only slow not halt the yen slide” “unless there is a clear shift in the fundamental backdrop driving japanese yen weaker the ability to turn the trend is limited” “the ministry of finance may see this as buying some time and hope that the fed completes its tightening cycle by yearend which may help to bring some degree of turn in the trend” if this move was aimed at slowing the upside in dollaryen it could have an impact will it be successful in turning dollaryen around i dont think so given that we just had the boj underpinning a very loose monetary policy and that came just after the fed underpinned a hawkish outlook i think the fundamentals will drive dollaryen higher but what japan is doing is sending a signal that its not a free ride to drive dollaryen higher “with rate hikes by the fed and swiss national bank that widened the interest rate gap between japan and overseas japan took the actual step further than a verbal warning because the market was expecting no actual action the government apparently tried to change the view” for traders the lip service from japanese officials this year was always viewed as a shortterm hurdle as they have repeatedly shown a lack of appetite to follow it up with actual fx intervention this has now changed with the boj taking the fight to the yen shorts while this policy will be successful in driving dollaryen lower in the shortterm policymakers ability to take dollaryen lower over the mediumterm is subject to more scepticism under the feds aggressively hawkish stance and the limited nature of japans fx reserves in order to achieve a stronger yen over the mediumterm we continue to believe that the boj will need to abandon its ultraloose policy stance as fx intervention efforts will prove unsustainable the next logical step was to actually intervene now it seems from the headlines that this is unilateral as opposed to multilateral so it’s just the bank of japan and the ministry of finance interveneing rather than the japanese asking for the assistance of other central banks ultimately the question will be how much has it been for the time being that has injected some more twoway risk into dollaryen