Japanese authorities are suspected of intervening in the currency market again on the first trading day after the Golden Week holidays. According to a Bloomberg analysis of Bank of Japan account data on May 7, the intervention is estimated to be around 4.68 trillion yen (approximately $30 billion). The government reaffirmed its strong stance to support the yen, but analysts note that with the interest rate gap between Japan and the U.S. at 300 basis points, intervention alone is unlikely to fundamentally reverse the yen's weakness.

This follows an initial round of intervention on April 30, just before the start of the holidays. Preliminary estimates from Bloomberg based on BOJ data indicated that day's intervention was around $34.5 billion, while Reuters cited sources suggesting the Ministry of Finance may have used up to 5.48 trillion yen (about $35 billion). It remains unclear whether multiple interventions occurred over the past weekend or on specific dates, as Japanese officials typically refrain from immediately confirming such actions.

The effects of intervention have been short-lived. The first suspected intervention on April 30 was triggered when the yen weakened past 160 per dollar—a key psychological level. Data from LSEG showed the yen appreciated roughly 3% after the move. Then, on Wednesday, the first trading day after the holiday, the yen surged nearly 2% from Tuesday's close of 157.87 to as high as 155.02, sparking speculation of a second intervention.

Reuters reported the April 30 intervention may have reached 5.48 trillion yen, close to the $36.8 billion spent during the last intervention in July 2024. Although authorities rarely confirm actions immediately, they have repeatedly warned against "one-sided" and "speculative" moves in the yen.

Hirofumi Suzuki, chief FX strategist at Sumitomo Mitsui Banking Corporation, noted price movements consistent with intervention, suggesting authorities aimed to defend the yen during the holiday. Nikos Tzabouras, senior market analyst at Tradu, pointed out the timing was strategic: thin liquidity due to Japan’s market closure, combined with dollar weakness amid renewed U.S.-Iran negotiation hopes, amplified the intervention’s effect.

However, the yen’s gains proved temporary. After the April 30 intervention, the currency weakened for three consecutive sessions, and it has yet to break firmly below 155.

Japan retains ample capacity for further intervention given its foreign reserves. Francis Tan, chief Asia strategist at Indosuez Wealth Management, noted that as of the end of March, Japan’s reserves stood at about $1.16 trillion. At an estimated cost of $34.5 billion per intervention, the ministry could theoretically conduct around 32 similar operations. He stated, "Reserves are not the main constraint at present; Japan’s foreign reserves are quite ample."

The real constraint is not capacity but potential external pressure from frequent intervention. According to IMF standards for classifying free-floating exchange rate regimes, Japan may only be able to intervene two more times before November if it wishes to maintain that classification. Excessive intervention could invite international scrutiny.

Masato Kanda, Japan’s top currency official, responded on Thursday that the IMF’s classification does not impose a formal limit on how often Japan can intervene. He added that authorities stand ready to act against speculative moves as needed. While he did not comment directly on Wednesday’s moves, he specifically warned markets to pay attention to the upcoming weekend—a hint interpreted by traders as a signal of possible further action.

Bilaterally, U.S. Treasury Secretary Scott Bessent is expected to meet Japanese Finance Minister Tsuyoshi Katayama next week, with exchange rates likely on the agenda.

Despite the short-term boosts from suspected interventions, analysts widely question their lasting impact. The core reason for the yen’s persistent weakness is the wide interest rate gap. The Bank of Japan’s policy rate is 0.75%, while the U.S. federal funds target range is 3.50%–3.75%, a difference of about 300 basis points. This gap continues to drive carry trades, where investors borrow low-yielding yen to invest in higher-yielding dollar assets.

Jesper Koll, expert director at Monex Group, noted that extremely low returns on domestic fixed-income assets are driving capital outflows among Japanese retail and institutional investors. He stated, "The BOJ is the only major central bank still maintaining negative real rates. Domestic investors have zero tolerance for negative returns on their capital." He summarized the policy dilemma: "Intervening without changing domestic monetary policy is like pressing the brake while keeping your right foot hard on the accelerator."

Raising interest rates could help support the yen, but the BOJ faces a difficult trade-off. Japan’s economic recovery remains fragile—growth in the fourth quarter of 2025 barely avoided a technical recession, with a revised quarter-on-quarter increase of 0.3% and a year-on-year rise of 1.3%. Aggressive rate hikes could further dampen already weak economic activity.

At the same time, Japanese government bond yields have climbed to near 30-year highs. The 10-year benchmark yield reached 2.537% on April 30. Further rate increases would push yields higher, increasing fiscal pressure.

Nevertheless, some market analysts believe rate hikes can no longer be avoided. Francis Tan of Indosuez Wealth Management argued that the BOJ must continue to raise rates, even at a cost to the economy. He suggested that, given rising inflation expectations, the central bank could even consider a more hawkish policy path.