Japan spends nearly $37 billion to support the yen

The yen's fall to a 38-year low against the dollar last month prompted authorities to spend tens of billions of dollars on a second intervention this year.

Official data from Japan’s Ministry of Finance showed on July 31 that the country spent 5.53 trillion yen ($36.8 billion) to prop up the yen in July, in line with earlier market estimates.

Last month, the yen continued to fall against the US dollar, at one point hitting a 38-year low of 161.9 yen per dollar. Officials have repeatedly warned that they will intervene to prevent excessive volatility.

USD/yen exchange rate developments over the past year. Chart: Reuters

In late April, Japanese authorities spent 9.8 trillion yen ($61.5 billion) to support the currency. However, this still did not stop the yen's decline. The main reason is still the 5% gap between the US and Japanese benchmark interest rates.

This makes the yen an ideal target for the carry trade, which involves borrowing low-interest-bearing currency and then selling it to buy higher-interest-bearing currency. The money can then be saved or invested.

Although the BOJ ended its negative interest rate policy in March this year, the yen remains under great pressure. The situation can only improve if the BOJ continues to raise interest rates and the US Federal Reserve (Fed) cuts interest rates.

On July 31, the BOJ raised interest rates for the second time this year, to around 0.25%, from 0-0.1% previously. This is the highest interest rate applied by this agency since 2008. On the same day, the Fed also signaled that it could discuss lowering interest rates at its September meeting.

The yen has rallied sharply, approaching 150 yen per dollar after the BOJ's decision on July 31. It is currently trading at 149.2 yen per dollar.