Recently, as the sharp fluctuations of the yen have been negatively impacting the Japanese economy, the Japanese government and the Bank of Japan have been intervening in the foreign exchange market to stabilize the exchange rate.

In September 2022, as the yen's value plummeted due to the strengthening of the US dollar, the government and the Bank of Japan intervened by selling dollars and buying yen, amounting to approximately 2.8 trillion yen. However, the yen continued to depreciate, and the yen/dollar exchange rate reached a historic high of 150 yen in October.

In response, the government intervened in the exchange rate twice on October 21st and 24th. According to the Ministry of Finance, the intervention amounted to approximately 6.3 trillion yen, making it the largest foreign exchange market intervention in 24 years.

The reason for this large-scale intervention is that the sharp depreciation of the yen significantly undermines the export competitiveness of Japanese companies and leads to rising prices, putting a heavy burden on household finances. In particular, the yen depreciation that lasted until the end of last year raised concerns about offsetting the effects of the government's efforts to stabilize prices and companies' wage increases.

The intervention in the exchange rate is conducted by the Bank of Japan acting as an agent under the instructions of the Minister of Finance. The Bank of Japan sells dollars secured from the Foreign Exchange Special Account to the market and buys yen in exchange.

However, with the foreign exchange market returning to a yen depreciation trend after each intervention, there have been criticisms that the government's intervention may only have short-term effects. Indeed, even after the intervention in October last year, the exchange rate remained at 135 yen but surged again to 140 yen in March this year. Some argue that the fundamental cause is the difference in monetary policies between the US and Japan, suggesting the need for a structural approach such as raising interest rates.

On the other hand, the Japanese government is sensitive to the yen/dollar exchange rate due to the large proportion of export-oriented companies and the country's trade structure heavily reliant on energy and raw material imports. Toyota Motor, a leading exporter, announced that it suffered a currency loss of approximately 1.7 trillion yen due to the yen's depreciation last year.

The government and the Bank of Japan are expected to consider further active intervention in the future to prevent excessive yen fluctuations from negatively impacting the Japanese economy. However, experts advise that addressing the structural issues and normalizing monetary policy to narrow the gap in global currency values is crucial rather than intervention.