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Japan can keep defending the yen, but intervention limits are tightening
USD/JPY sits below 164.00 after Japan’s spring intervention of 11.73 trillion yen, about $73 billion, which later failed to sustain gains and left analysts watching a future “rations by classification” constraint.
The Japanese yen traded firmer on Monday, with USD/JPY down 0.05% and hovering just below 164.00 after last week’s high stalled. FXStreet said markets have spent about a fortnight debating whether Japan can afford to keep defending the currency, and argued the constraint is less about dollars in reserve than about limits on how Japan can intervene without losing its freely floating classification.
FXStreet estimated Japan holds about $1.3 trillion in foreign exchange reserves, with roughly $1.1 trillion in foreign securities, mostly US government debt that cannot be liquidated quickly without disrupting bond markets and crystallizing losses. It said the practical capacity comes from foreign currency held on deposit at the central bank and other central banks, estimated between $150 billion and $180 billion, plus standing swap lines with the Federal Reserve worth up to $120 billion.
The outlet noted Japan deployed 11.73 trillion yen, about $73 billion, over April and May after USD/JPY broke above 160.00, describing the size as close to twice the scale of previous operations. Within six weeks, FXStreet said the pair reclaimed the defended level, and it now trades roughly four yen beyond that level, implying the defense did not provide lasting support.
FXStreet added that intervention limits may be harder to replenish than cash itself, because the IMF treats a currency as freely floating only if official intervention remains within a small number of short episodes across a rolling window. It said analysts counting the spring budget expected only two more operations were available before November without risking the label, while pointing to an earlier signal from the absence of intervention when crude oil fell sharply and the yen gained less than expected.
Latest closeWTI crude $81.92 ▼8.3%|USD/JPY 163.75 ▼0.1%