Record-breaking intervention! Japan has spent $96.4 billion to bail out the yen in the past month.

Japan has intervened in the foreign exchange market with a record amount of funds over the past month. This move not only broke historical records but also significantly enhanced its deterrent effect due to the rare endorsement from the United States, sending a strong signal to the market that shorting the yen is not an option.

Data released by Japan's Ministry of Finance on Friday showed that the government intervened in the foreign exchange market with a total of 15.4 trillion yen (approximately US$96.4 billion) between July 30 and August 26, setting a new record for the largest monthly intervention. This followed the yen's fall to its lowest level in 40 years, nearing the 164 yen per dollar mark. Japanese Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessant confirmed in early August that they had conducted a joint intervention on July 31 and both stated they would not hesitate to intervene again if necessary.

Following the announcement of the joint intervention, the yen rose to a high of 155.23 per dollar, a significant rebound from before the intervention. By Friday evening in Tokyo, the yen was trading at 159.68 per dollar, having given back more than half of its gains, but having failed to reach the 160 level for approximately four weeks, indicating that the market remains wary of further action from the authorities.

Behind the record-breaking intervention: persistent high pressure on the yen.

The scale of this intervention reflects the urgency with which the Japanese authorities are dealing with the continued pressure of the yen's depreciation. According to Bloomberg's analysis of Bank of Japan data, the authorities used approximately 8.45 trillion yen on July 30, followed by another 5.3 trillion yen the next day, and a significant sharp rise in the yen was also observed on August 1.

"This is a huge number," noted Rinto Maruyama, senior interest rate and foreign exchange strategist at SMBC Nikko Securities. "The authorities have intervened in the foreign exchange market with a total of 27 trillion yen this year, but the dollar-yen exchange rate is still hovering below 160, which shows that the underlying pressure for a weaker yen remains quite strong."

It is worth noting that this intervention was also innovative in its strategy. The authorities chose to intervene in the market the day before the Bank of Japan's policy decision, breaking with past practice—previous interventions were usually implemented after the central bank's decision or the release of important economic data. This move was intended to catch speculators off guard.

For the first time in 28 years, the US and Japan have joined forces to intervene.

The most noteworthy aspect of this intervention was the involvement of the United States. On July 31, Tokyo and Washington jointly intervened in the market, marking the first coordinated intervention to support the yen since 1998. The amount injected by the United States was not included in the data from Japan's Ministry of Finance, and its scale is expected to be relatively limited, but its symbolic significance far exceeds the actual amount of funds involved.

During the intervention, Bessant was photographed by the media with a to-do list in his notebook for purchasing up to $10 billion in yen. In comparison, the US interventions in 1998 and 2011 were both close to $1 billion. After the intervention, Bessant posted on the X platform, expressing strong support for Japan's decisive market and monetary measures to correct the severely undervalued yen.

Both sides also stated that future foreign exchange interventions could utilize the Federal Reserve's Foreign and International Monetary Authority Repo Facility (FIMA Repo Facility). This move effectively addressed market concerns about the limited ammunition available to the authorities—previously, some market participants believed that the authorities' intervention space was constrained due to Bessant's opposition to Japan's sale of US Treasury bonds.

Rinto Maruyama stated, "Once the US intervenes, the market perceives that there is virtually no limit to the amount of money the authorities can allocate for intervention. Therefore, I believe this coordinated intervention has been quite effective in itself."

Market Outlook: Bank of Japan interest rate hike expectations rise, US policy direction becomes key.

The joint intervention and Bessant's public statements have fueled market expectations for a September rate hike by the Bank of Japan, which, if it does happen, will provide further support for the yen.

"The strong demand for dollars at the 160 yen level has clearly subsided amid concerns about potential intervention," said Keiichi Iguchi, senior strategist at Mizuho Holdings. He added that factors favoring a weaker dollar are increasing, but a trend reversal is still some way off. "If the market reacts to a hawkish stance from the Bank of Japan at some point, the strong dollar and weak yen pattern could reverse."

Rinto Maruyama emphasized that the direction of US policy is equally crucial. "The key going forward is that the market will assess whether the US will actually raise interest rates, based on Warsh's speech in Jackson Hole tonight and next week's jobs report. This will have a significant impact on the yen's exchange rate."

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