The Silent Battle for the Yen

Japan is once again fighting for its currency. This time quietly — without loud ministerial statements or dramatic press conferences. But the numbers emerging from banking analytics speak for themselves. According to estimates by Citi, the Japanese government has already spent around 10 trillion yen over the past few weeks buying its national currency. In dollar terms, that is roughly $63 billion. Sixty-three billion dollars disappearing into the foreign exchange market within days — a scale that is hard to comprehend, yet that is the price Tokyo is paying to convince the world that the yen should not be cheap.

The data on current deposits at the Bank of Japan are the breadcrumbs analysts use to trace invisible interventions. The central bank does not loudly announce its actions, but statistics do not lie. On April 30, about 5 trillion yen disappeared from deposits, and between May 1 and May 6 another 5 trillion vanished. Ten trillion in two weeks. These are not random liquidity fluctuations — they are the footprints of the currency regulator’s heavy boots on the sands of the money market.

Why now: the specter of 160 yen per dollar

The trigger for the intervention, as in previous episodes, was the psychological level of 160 yen per dollar. This appears to be the red line Japanese financial authorities cannot tolerate. Once USD/JPY crosses it, alarm bells go off in Tokyo and the intervention machinery swings into action.

After the intervention, the pair obediently fell toward 155 yen. A temporary reprieve bought with billions of dollars. But by the beginning of the current week, the exchange rate had sharply rebounded and climbed back toward 158 yen per dollar. The market, like a stubborn beast, lay down for a moment, caught its breath, and began rising again. This is the classic pattern of currency interventions unsupported by fundamental economic shifts: they provide a temporary effect, but once the buying stops, the market returns to where underlying forces are pushing it.

Historical parallels: 2022, 2024, and now 2026

To understand the scale of what is happening, it is useful to look back. In 2022, Japan spent 9.1 trillion yen supporting the yen — about $65 billion at the exchange rate of the time. In 2024, the volume rose to 15.2 trillion yen, equivalent to roughly $98 billion. And now, in 2026, 10 trillion yen has already been spent in just the first two weeks of intervention, with the total potentially reaching 30 trillion yen. The trend is obvious: with every new episode, Tokyo has to spend more money for increasingly modest results.

It resembles an arms race in which the opponent is not another central bank but the global market itself, with trillions of dollars in daily turnover. The Japanese government enters this battlefield like a hunter armed with a spear against a tank. It has reserves, determination, and experience from past interventions, yet the fundamental forces — interest rate differentials, trade flows, and energy prices — continue to push the yen downward.

Anatomy of an intervention: how it works

The mechanics of Japan’s currency interventions are simple in concept but difficult in execution. When the Ministry of Finance decides the exchange rate has gone too far, it instructs the Bank of Japan to enter the market and begin buying yen using dollars from foreign exchange reserves. This creates artificial demand for the Japanese currency while simultaneously increasing the supply of dollars, which should push the exchange rate in the opposite direction.

The problem is that the market knows interventions are not infinite. Japan’s reserves are large, but not limitless. And as long as the interest rate gap between the United States and Japan remains enormous — and it does, because the Federal Reserve keeps rates high while the Bank of Japan, despite all the talk of normalization, still maintains rates near zero — the fundamental imbalance will continue driving the yen lower.

Hidden demand for dollars: small and medium-sized businesses

Citi highlights an interesting phenomenon in its analysis. If interventions manage to push USD/JPY below 155 yen, this would likely suppress hidden dollar demand from Japanese importers, including small and medium-sized businesses.

This is an important point often overlooked. Major Japanese corporations — Toyota, Sony, Mitsubishi — have long learned to hedge currency risks and can operate under almost any exchange rate. But thousands of small and medium-sized companies importing raw materials, energy, and components in dollars face desperate conditions when the yen weakens. They are forced to buy dollars at almost any price simply to continue operating, and this panic-driven demand itself pushes the pair higher.

When the exchange rate exceeds 160, fear among these companies peaks. They rush to buy dollars before the yen falls even further. Breaking this vicious cycle is one of the goals of intervention. If authorities can keep the exchange rate below 155, panic subsides, importers pause their purchases, and demand for dollars temporarily weakens.

Oil and the stock market: two enemies of the yen

However, Citi warns that the yen is pressured not only by speculators and frightened importers. High oil prices are a separate headache for Japan, a country almost entirely dependent on imported energy. Every surge in oil prices means Japanese companies need more dollars to pay for the same amount of oil. This increases structural demand for the U.S. currency and weighs on the yen.

Then there is the stock market. Japanese equities are rising, attracting foreign investors. But when a foreign investor buys Japanese stocks, they simultaneously sell yen and buy dollars or euros for settlement purposes. The result is a paradoxical situation: the success of Japan’s stock market works against Japan’s currency.

Citi warns that the combination of expensive oil and a rising stock market continues to exert downward pressure on the yen. Once interventions stop, USD/JPY will most likely recover quickly. This is a bitter pill for Japanese financial authorities: they may win the battle, but lose the war.

Good news: structural shifts in supply and demand

Despite this gloomy backdrop, Citi also notes encouraging signs. The overall dynamics of yen supply and demand are gradually improving. This means the fundamental forces that pushed the currency lower for years are beginning to weaken.

According to the bank’s analysts, the currency pair is losing momentum for a breakout above the 158–160 yen-per-dollar range. This does not mean such a breakout is impossible — it could still happen during a particularly strong dollar rally. But the pair currently has less strength to firmly establish itself above 160 and continue higher than during previous episodes of yen weakness.

Partly, this is because the Bank of Japan has finally begun a very cautious normalization of policy. Rates have edged slightly higher, rhetoric has shifted, and the market has started pricing in further tightening. This is not enough to radically change the picture, but enough to remove the most extreme speculative pressure.

Reserves: how long can the ammunition last?

The question now worrying all observers of the Japanese currency market is how much longer Tokyo can continue this strategy. Citi answers by pointing to Japan’s foreign exchange reserves, which exceed $1.3 trillion.

From 2022 to 2024, reserves declined from roughly $1.4 trillion to $1.2 trillion. The reduction amounted to about $200 billion — noticeably more than the $160 billion spent on interventions. Why? Because a significant portion of the reserves is invested in U.S. bonds, and when U.S. interest rates rose, bond prices fell. The reserves shrank not only because Japan spent them, but also because the assets holding those reserves lost value.

Now the U.S. bond market is more stable. This means that if Japan’s Ministry of Finance is willing to tolerate a similar reduction in reserves, authorities could allocate around 30 trillion yen to supporting the yen. Ten trillion has already been spent. Twenty trillion remains in reserve. The interventions of the past two weeks may prove to be only the beginning rather than the end of the campaign.

Thirty trillion: a lot or a little?

Thirty trillion yen equals roughly $190 billion at current exchange rates. For comparison, that is approximately Pakistan’s annual budget or half of India’s total foreign exchange reserves. But in the global foreign exchange market, where daily turnover exceeds $7 trillion, $190 billion is merely a drop in the ocean.

That is precisely why interventions can only adjust the exchange rate, not reverse it entirely. As long as fundamental conditions — interest rate differentials, trade flows, and oil prices — remain unchanged, the yen will tend toward weakness. Interventions can temporarily slow this movement, create problems for speculators betting against the yen with leverage, and provide relief for Japanese importers. But they cannot fundamentally reverse the trend.

The bigger game: what comes next

Japan has found itself in an extremely difficult position. On one hand, a weak yen benefits exporters — companies like Toyota and Sony that earn most of their revenue abroad and happily convert it back into yen at favorable rates. On the other hand, a weak yen crushes the domestic market, fuels inflation through more expensive imports, and damages household purchasing power.

The choice between the interests of exporters and consumers is a classic Japanese dilemma that has existed ever since the country became an export superpower. Now the pendulum has swung too far toward yen weakness, and the government is trying to pull it back. But it is doing so cautiously, without sudden moves, because an excessively strong yen would destroy exporters’ profits and crash the stock market.

By publishing its analysis, Citi makes one thing clear: interventions may continue, reserves are sufficient for another 20 trillion yen, and the structural situation is slowly improving. This is not a forecast of an immediate reversal, but neither is it cause for panic. It is a cold assessment of a reality Japan may have to live with for a long time — balancing between the hammer of a weak yen and the anvil of an expensive dollar, periodically entering the market with multi-billion-dollar purchases and hoping that, eventually, the fundamental winds will change.

For now, however: 10 trillion yen in two weeks — and this may be only the beginning.