Yen-buying intervention since July 30 reaches 12 trillion-13 trillion yen

2026-08-04

Intervention scale hits record

The yen-buying foreign exchange intervention carried out by the government and the BOJ from July 30 was estimated by the market at 12 trillion-13 trillion yen. It is viewed as having totaled 11 trillion-12 trillion yen over the two days of July 30 and 31, and as having also been carried out on Aug. 3. Including the roughly 11.7 trillion yen executed from late April to late May this year, the cumulative amount for the year is expected to exceed 20 trillion yen. It has already surpassed the previous record for yen-buying intervention of 15.3 trillion yen set in 2024.

The scale of the three-day intervention can be estimated from the BOJ's forecast on Aug. 5 for current account balances published on the 4th. Short-term money market firms had expected the 'fiscal and other factors' component of the balance to fall by 2.32 trillion yen-2.6 trillion yen if there had been no intervention. When the BOJ buys yen in the market, funds move to the Treasury and banks' BOJ current account balances fall. The forecast released on the 4th showed a decline of 3.35 trillion yen, allowing an approximate estimate of the intervention amount on the 3rd from the difference.

Speculators remain heavily short yen

Finance Minister Satsuki Katayama and U.S. Treasury Secretary Scott Bessent on the 3rd both warned against further yen weakness and signaled that they would not hesitate to intervene again. The market is also showing several signs of excessive yen weakness. According to the U.S. Commodity Futures Trading Commission (CFTC), net yen short positions against the dollar held by 'leveraged funds' such as hedge funds stood at 102,000 contracts, or about 1.27 trillion yen, as of July 28 before the intervention, close to the peak of 110,000 contracts before Japan's unilateral intervention in July 2024.

At that time, the intervention triggered hedge fund short covering, and the yen later strengthened by more than 20 yen against the dollar. Hirofumi Suzuki, chief currency strategist at Sumitomo Mitsui Banking Corp., said on the coordinated intervention this time that 'people trading in the short term were forced to adjust their yen short positions'. The real effective exchange rate hit its weakest level since the move to a floating exchange rate system in June, and many see the intervention as buying time until the next move.

Pressure for yen weakness has eased

The market is on even higher alert over this intervention than over the April-May operation because it is coordinated by Japan and the U.S. Suzuki said the next move depends on U.S. and Japanese monetary policy and Middle East developments, and that 'it may take about two months before the market turns back to yen selling'.

At the macro level, the scenario of extreme yen selling has receded. The rise in crude prices driven by Middle East tensions is easing for now, and the pressure to sell yen and buy dollars may weaken as the trade deficit narrows going forward. Koya Miyamae, senior economist at SMBC Nikko Securities, estimates that the trade deficit, which was 2.9 trillion yen in 2025, will widen to around 5 trillion yen in 2026 before narrowing again in 2027. He expects normalization of the Strait of Hormuz and increased output from substitute production in other regions to boost supply and push down prices.

The impact of the widening 'digital deficit' that arises when households and businesses in Japan use foreign digital online services is also easing. The services balance, including inbound consumption and intellectual property (IP) royalties, has narrowed from a deficit of around 5 trillion yen in fiscal 2021 and 2022 to a deficit in the 3 trillion yen range recently. Jun Takeda, chief economist at Itochu Research Institute, said the structure in which travel receipts from inbound visitors and others offset the digital deficit is continuing, and IP royalties are also growing. He added that 'the scenario in which a widening digital deficit triggers yen weakness is shrinking'.

Pressure for dollar buying from importers has also eased. Shinsuke Nakazato, adviser at Resona Bank's market trading division, said, 'Dollar buying surged over the past few trading days. Dollar buying for actual demand has run its course'. With yen selling and dollar buying by hedge funds and importers having paused, 'the mid-157 yen level per dollar has become a neutral level that is less likely to be pulled either toward yen weakness or yen strength'.

Now that excessive yen weakness has eased, the question is how the government will present a path toward fiscal consolidation and BOJ rate hikes. Market participants are trying to gauge the authorities' next move.

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