{"content_id":"k3sqsc5ggl","slug":"exchange-rate-intervention-yen-won-dollar-macro-analysis","locale":"en","schema_type":"Report","category":"report","category_name":"Report","title":"Understanding the Structure of the Yen, Won, and Dollar Through the History of Currency Intervention","summary":"Exchange rates are not determined by interest rate differentials alone; policy expectations, capital flows, trade, and risk aversion all operate simultaneously. Drawing on Japan's past foreign exchange market interventions and yen movements in 2024, this analysis presents a framework for interpreting the Bank of Japan's dilemma and the won-dollar exchange rate.","sponsorship_disclosure":null,"author":{"name":"Injoys Editorial Team","url":"https://injoys.com/ko/about"},"key_points":["Japan had already resumed interventions in which it sold dollars and bought yen to curb yen weakness in 2022, so it is inaccurate to describe this as its first such intervention in 28 years in 2026.","Foreign exchange market intervention can reduce short-term volatility, but it is difficult to reverse an exchange rate trend for an extended period unless supported by interest rate differentials, inflation, fiscal conditions, and growth prospects.","The Bank of Japan must control import prices and yen weakness while also considering the government bond market, financing costs for households and businesses, and an economic slowdown.","The won-dollar exchange rate is affected not only by the Korea-U.S. interest rate differential but also by the dollar's global direction, the trade balance, foreign capital, risk aversion, and domestic growth prospects.","For dollar or yen investments, rather than predicting a specific exchange rate, it is more rational to determine when the funds will be used and the acceptable loss range, exchange money in installments, and manage the overall portfolio's currency exposure."],"content_markdown":"An exchange rate is the relative price of two currencies. Therefore, it is difficult to reliably predict its direction based only on one country’s interest rates or economy. This is because central bank policies, government intervention in foreign exchange markets, trade and capital flows, geopolitical shocks, and investor positioning all influence one another.\n\nThis article does not provide real-time exchange rate targets. Instead, it connects Japan’s intervention history, the Bank of Japan’s policy constraints, the yen carry trade, and the determinants of the won-dollar exchange rate to explain which claims can be trusted.\n\n## Why Exchange Rates Are Difficult to Predict\n\nThe main reason exchange rates are difficult to predict is that markets price in expectations about future policies before current economic indicators. Even when the same inflation data is released, the exchange rate may move in the opposite direction depending on whether the market had already anticipated it and whether the central bank’s response is expected to change.\n\n### Key Variables That Move Exchange Rates\n\n| Variable | General transmission channel | Points to note when interpreting |\n|---|---|---|\n| Nominal interest rates and expected rates | Funds may move into a currency in pursuit of relatively higher returns | A high-interest-rate currency does not always strengthen when hedging costs and the risk of exchange rate depreciation are considered |\n| Real interest rates | Returns calculated by subtracting expected inflation from nominal interest rates affect currency demand | Expected inflation is not directly observable and varies depending on the measurement method |\n| Growth outlook | May raise expectations for investment and equity inflows | Expectations may simultaneously emerge that slower growth will lead to interest rate cuts |\n| Trade and current account balances | Export proceeds and demand for import payments affect currency supply and demand | Overseas investment income and corporate currency hedging can be as important as the goods balance |\n| Risk aversion | When a shock occurs, funds may move into highly liquid assets such as the dollar | Reactions vary depending on the cause of each country’s shock and market positioning |\n| Government intervention | Trading with foreign exchange reserves or verbal warnings affects the speed and volatility of exchange rate moves | Intervention that runs counter to monetary policy and economic fundamentals may have only a short-lived effect |\n| Position unwinding | Simultaneous liquidation of leveraged trades amplifies price movements | Movements can be faster and more nonlinear than changes in economic indicators |\n\nInterest rate differentials are an important variable, but they are not a stand-alone formula. For example, even if U.S. interest rates are higher than South Korea’s, the won may strengthen if rapid U.S. rate cuts are expected or if South Korea’s exports and current account improve significantly.\n\n## History and Facts of Japan’s Foreign Exchange Market Intervention\n\nForeign exchange market intervention must be distinguished from policy rate adjustments. In Japan, authority over foreign exchange policy rests with the Ministry of Finance, while the Bank of Japan executes market transactions under the ministry’s direction. By contrast, the Bank of Japan determines monetary policy, including the policy rate and government bond purchases.\n\n| Period | Market conditions | Direction and significance of intervention |\n|---|---|---|\n| 1995 | Rapid yen appreciation to below 80 yen per dollar | Japan, the United States, and others responded by buying dollars and selling yen. The Great Hanshin-Awaji Earthquake was part of the backdrop that heightened economic anxiety at the time, but it is difficult to regard it as the sole cause of the strong yen. |\n| 1998 | Yen depreciation into the 140-yen-per-dollar range amid the Asian financial crisis | The United States and Japan intervened by buying yen. Financial instability and concerns about neighboring countries’ currencies and export competitiveness were discussed together. |\n| March 2011 | The yen surged after the Great East Japan Earthquake | The G7 carried out coordinated intervention to sell yen. It was largely intended to curb expectations of repatriation after the disaster and speculative movements. |\n| September–October 2022 | The yen weakened rapidly as the interest rate gap between the United States and Japan widened | Japan sold dollars and bought yen. It was the first intervention to stem yen depreciation since 1998. |\n| April–May and July 2024 | The yen weakened to around 160 per dollar and volatility increased | Japanese Ministry of Finance data records large-scale intervention to buy yen. Changes in the policy rate and U.S. inflation data also affected the exchange rate during the same period. |\n\nTherefore, the claim that intervention to stop yen depreciation occurred in 2026 for the first time in 28 years is invalid. The first yen-buying intervention since 1998 took place in 2022, and additional intervention was also confirmed in 2024. To determine whether a specific transaction in 2026 was official intervention, the monthly and quarterly intervention records published by Japan’s Ministry of Finance must be checked.\n\n### Criteria for Determining Whether Intervention Succeeded\n\nThe fact that the exchange rate fell immediately after intervention is not enough to conclude that it succeeded. At a minimum, the following items must be assessed separately.\n\n1. Did excessive volatility decline immediately after the intervention?\n2. Did the effect last for months rather than days?\n3. Did the expected interest rate gap between the United States and Japan move in the same direction?\n4. Did market participants believe that the government might intervene repeatedly?\n5. Was the scale of intervention sufficient relative to market trading volume and foreign exchange reserves?\n\nCoordinated intervention can be more powerful than unilateral intervention because several countries send the same signal. However, if the monetary policy direction of major countries remains unchanged, there is no guarantee that it will alter the long-term trend.\n\n## Domestic and International Spillover Effects of a Super-Weak Yen\n\n### Japanese Households and Companies\n\nA weak yen raises the yen-denominated prices of crude oil, gas, food, and raw materials. If wage growth fails to keep pace with inflation, households’ real purchasing power declines. On the other hand, companies with a high share of overseas sales may report higher earnings when foreign-currency profits are converted into yen, while spending by foreign visitors to Japan gains price competitiveness.\n\nA weak yen therefore does not produce the same gains and losses across Japan. The beneficiaries and those bearing the burden differ depending on import dependence, the share of overseas production, currency hedging, and household income structures.\n\n### Relationship With U.S. Treasury Yields\n\nCaution is needed regarding the simple causal claim that a weak yen automatically raises long-term U.S. interest rates. If Japanese interest rates rise, Japanese investors may have less incentive to hold U.S. Treasuries while bearing currency-hedging costs, and the return of funds to Japan could put upward pressure on U.S. Treasury yields.\n\nIn practice, however, U.S. Treasury yields are jointly determined by the Federal Reserve’s policy outlook, U.S. inflation and growth, the fiscal deficit, Treasury issuance, and global demand for safe assets. The movement of Japanese funds is one of several factors, not the sole cause.\n\n### Emerging Markets\n\nA strong dollar can increase principal and interest burdens for countries with large dollar-denominated debts and insufficient foreign exchange reserves. If the yen is also weak, exporters competing with Japanese companies may face price pressure.\n\nHowever, not all emerging-market countries necessarily sell U.S. Treasuries to defend their exchange rates. Various tools are used, including policy rate adjustments, foreign exchange swaps, bank liquidity regulations, capital flow management, and verbal intervention. Whether U.S. Treasuries were actually sold must be verified through country-specific data on foreign exchange reserves and asset holdings.\n\n## The Bank of Japan’s Dilemma and the Yen Carry Trade\n\nExplaining the Bank of Japan’s difficulty in raising rates quickly solely in terms of fear rooted in the past is incomplete. Policy decisions take into account the persistence of inflation, wage growth, consumption and investment, government bond market functioning, and the interest burden on the government and private sector.\n\n### Trade-Offs Created by Raising Interest Rates\n\n| Expected effects of interest rate increases | Costs that may arise simultaneously |\n|---|---|\n| Expectations of a narrower U.S.-Japan interest rate gap and reduced yen depreciation | Higher borrowing costs for households and companies |\n| Reduced import-price pressure | Potential slowdown in consumption and capital investment |\n| Potential improvement in financial institutions’ net interest margins | Valuation losses on bond holdings and greater government bond market volatility |\n| Monetary policy normalization | Risk of a gradual increase in interest costs on enormous government debt |\n\nIt is true that past cases in which Japan’s economy deteriorated after rate increases have influenced policy caution. However, Japan’s prolonged deflation cannot be explained by a single rate increase. The collapse of asset prices, financial institution distress, demographic structure, low expected inflation, and shocks to the global economy all played a role.\n\n### What the 2024 Yen Carry Unwind Revealed\n\nThe yen carry trade is a strategy of borrowing yen at low interest rates and then investing in dollar bonds, stocks, or other higher-yielding assets. Losses on this trade can increase when Japanese interest rates rise, U.S. rate cuts are expected, or the yen suddenly strengthens.\n\nOn July 31, 2024, the Bank of Japan raised its short-term policy rate target to approximately 0.25%. As concerns about a U.S. economic slowdown, a correction in technology stocks, and the unwinding of crowded positions converged, the Nikkei 225 fell by more than 12% on August 5. It is inaccurate to conclude that this was caused solely by Japan’s rate increase or to say that the Bank of Japan reversed its policy within two days. A Bank of Japan official signaled that the bank would not rush additional increases in an unstable market, but it did not cancel the July rate increase itself.\n\n## The Structure Determining the Won-Dollar Exchange Rate\n\nA rise in the won-dollar exchange rate means that more won is needed to buy one dollar, indicating won weakness. An inverted South Korea-U.S. policy rate differential can increase the relative attractiveness of dollar assets, but actual capital flows reflect currency-hedging costs, the equity market outlook, and credit risk.\n\n### Indicators to Check Beyond the Interest Rate Differential\n\n- The dollar index and real U.S. Treasury yields\n- South Korea’s goods balance and current account balance\n- Semiconductor exports and terms of trade\n- Net purchases of domestic stocks and bonds by foreign investors\n- Overseas securities investment by domestic institutions and individuals\n- Energy import prices and international oil prices\n- China’s economy and movements in the yuan\n- Geopolitical risks and global volatility indices\n- Expectations for the future rate paths of the South Korean and U.S. central banks\n\nThe Bank of Korea does not have to match U.S. interest rates exactly solely for the sake of the exchange rate. Monetary policy comprehensively considers price stability, financial stability, and growth conditions. Raising rates may support the won, but it can increase the interest burden on household debt and deepen the slowdown in domestic demand. Conversely, lowering rates may help the economy and financing costs, but all else being equal, it can increase pressure for won depreciation.\n\n### A Strong Won Is Not Always Beneficial\n\nA stronger won reduces the cost of imported raw materials and overseas travel, as well as the won-converted burden of foreign-currency debt. On the other hand, it may reduce the won value of exporters’ foreign-currency revenue. Actual export competitiveness is more closely reflected by the real effective exchange rate, which compares the won with competitor currencies such as the yen, yuan, and euro, than by the won-dollar exchange rate alone.\n\n## Relative Exchange Rates and Policy Mixes Matter More Than Numbers\n\nLooking only at the exchange rate level can cause important information to be missed. If the won and yen strengthen against the dollar at the same time, changes in South Korean companies’ price competitiveness against Japan may be limited. Conversely, if only the won strengthens while the yen remains weak, the burden may increase for industries competing with Japanese companies.\n\nForeign exchange market analysis should compare the following three factors together.\n\n1. Movements of the domestic currency against the dollar\n2. Cross-rates against the currencies of major competitors\n3. The real effective exchange rate, which reflects inflation differentials\n\nThis relative-price perspective captures an aspect that a simple dollar exchange rate forecast can easily miss. The effect of exchange rates on exports also varies by company depending on the share of overseas production, the cost of imported intermediate goods, settlement currencies, and currency hedging.\n\n## A Practical Verification Method for Identifying Foreign Exchange Market Intervention\n\nNot every sudden exchange rate movement is government intervention. To distinguish market rumors from official intervention, check in the following order.\n\n1. Check whether the fiscal authorities have answered questions about whether intervention occurred.\n2. When the official monthly intervention total is released, compare it to determine whether a transaction took place.\n3. When quarterly daily data is released, check the transaction date and amount.\n4. Review inflation, employment, and central bank remarks released at the same time.\n5. Examine whether options volatility, interest rates, and stock prices moved simultaneously, not just the spot exchange rate.\n\nThe government may decline to confirm intervention immediately after a transaction to preserve its effectiveness. Therefore, reports that determine the scale and parties involved based only on sharp intraday movements should be treated as provisional information.\n\n## Principles for Investing in Exchange Rates, Dollars, and Yen\n\nIt is difficult to consistently identify exchange rate peaks and troughs. However, that does not mean a particular currency will rise forever or that dollar dominance is permanently guaranteed. The dollar maintains a central position in international foreign exchange reserves, trade settlement, and financial markets, but its share and manner of use may change depending on policies, sanctions, and market infrastructure.\n\nIndividual investors are better off defining their objectives before forming a forecast.\n\n- Money with a fixed spending date, such as tuition abroad or travel expenses, should be exchanged in installments on multiple dates.\n- For overseas stock investments, calculate equity risk and exchange rate risk separately.\n- If most income and spending are in won, approach foreign-currency assets as a means of diversification.\n- Leveraged foreign exchange products and unhedged debt-financed investments can generate large losses from even small exchange rate movements.\n- Set target allocations and rebalance when exchange rate changes cause allocations to deviate substantially.\n- When comparing interest income, include taxes, fees, foreign exchange spreads, and hedging costs.\n\nBuying in installments only diversifies timing risk; it does not prevent losses. If investors continue buying a currency that declines over a long period, the average purchase price may fall while the total loss increases.\n\n## Five Pillars for Reading the Future Macroeconomy\n\n### 1. Geopolitics and Energy Prices\n\nConflict in the Middle East and instability along major maritime shipping routes can raise oil, gas, and freight prices. This can worsen inflation and trade balances in importing countries and delay central bank rate cuts. However, the actual impact depends on the scale and duration of supply disruptions.\n\n### 2. K-Shaped Gaps in Assets and Income\n\nTechnological change and rising asset prices can provide greater benefits to groups with capital, skills, and market power. However, polarization is not an inevitable law of nature. Taxation, education, competition policy, and labor market institutions can change distributional outcomes.\n\n### 3. Federal Reserve Independence and Policy Credibility\n\nChanges in Federal Reserve leadership are important, but a particular candidate or policy direction should not be treated as settled before the official process. Markets evaluate the price stability objective, congressional oversight, the composition of the policy committee, and whether central bank independence is maintained, rather than the individual alone.\n\n### 4. AI Investment and Productivity\n\nInvestment in AI data centers and semiconductors can increase demand for electricity, equipment, and capital goods. It may raise productivity over the long term, but the speed at which it translates into corporate earnings and economy-wide productivity is uncertain. Overinvestment and power constraints must also be examined.\n\n### 5. The Dollar’s International Role\n\nThe dollar’s status derives from the scale and liquidity of U.S. financial markets, legal credibility, the Treasury market, payment networks, and the limitations of alternative currencies. The possibility of a gradual decline in the dollar’s share and the resurgence of dollar demand during crises can occur simultaneously. Therefore, both extremes—an immediate collapse of dollar dominance and its permanent immutability—should be treated with caution.\n\n## How to Read Exchange Rate Forecasts Through Scenarios\n\n| Scenario | Factors favorable to the yen | Factors favorable to the won | Key downside risks |\n|---|---|---|---|\n| Slower U.S. inflation and falling interest rates | Narrower U.S.-Japan interest rate gap | Dollar weakness and recovery in risk appetite | If the U.S. recession deepens, demand for the dollar as a safe asset may increase |\n| Virtuous cycle of wages and prices in Japan | Gradual monetary policy normalization by the Bank of Japan | A stronger yen may improve South Korea’s relative export conditions | Slower domestic demand in Japan and increased market volatility |\n| Surge in international oil prices | Potential for some safe-haven characteristics to take effect | Limited | Deteriorating trade balances in energy-importing Japan and South Korea |\n| Increased global risk aversion | Potential yen strength during position unwinding | Generally downward pressure on the won | Direction varies depending on the source of the shock and the policy response |\n| Improved South Korean exports and growth | Limited direct effect | Improved current account and foreign capital flows | Greater dollar strength may offset won appreciation |\n\nExchange rate forecasts are more accurate when expressed as conditional scenarios rather than a single target value. This also makes it possible to identify which assumption was wrong when a forecast misses the mark.","content_html":"\u003cp\u003eAn exchange rate is the relative price of two currencies. Therefore, it is difficult to reliably predict its direction based only on one country’s interest rates or economy. This is because central bank policies, government intervention in foreign exchange markets, trade and capital flows, geopolitical shocks, and investor positioning all influence one another.\u003c/p\u003e\n\u003cp\u003eThis article does not provide real-time exchange rate targets. Instead, it connects Japan’s intervention history, the Bank of Japan’s policy constraints, the yen carry trade, and the determinants of the won-dollar exchange rate to explain which claims can be trusted.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#why-exchange-rates-are-difficult-to-predict\" class=\"anchor\" id=\"why-exchange-rates-are-difficult-to-predict\"\u003e\u003c/a\u003eWhy Exchange Rates Are Difficult to Predict\u003c/h2\u003e\n\u003cp\u003eThe main reason exchange rates are difficult to predict is that markets price in expectations about future policies before current economic indicators. Even when the same inflation data is released, the exchange rate may move in the opposite direction depending on whether the market had already anticipated it and whether the central bank’s response is expected to change.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#key-variables-that-move-exchange-rates\" class=\"anchor\" id=\"key-variables-that-move-exchange-rates\"\u003e\u003c/a\u003eKey Variables That Move Exchange Rates\u003c/h3\u003e\n\u003cdiv class=\"overflow-x-auto\"\u003e\u003ctable\u003e\n\u003cthead\u003e\n\u003ctr\u003e\n\u003cth\u003eVariable\u003c/th\u003e\n\u003cth\u003eGeneral transmission channel\u003c/th\u003e\n\u003cth\u003ePoints to note when interpreting\u003c/th\u003e\n\u003c/tr\u003e\n\u003c/thead\u003e\n\u003ctbody\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Variable\"\u003eNominal interest rates and expected rates\u003c/td\u003e\n\u003ctd data-label=\"General transmission channel\"\u003eFunds may move into a currency in pursuit of relatively higher returns\u003c/td\u003e\n\u003ctd data-label=\"Points to note when interpreting\"\u003eA high-interest-rate currency does not always strengthen when hedging costs and the risk of exchange rate depreciation are considered\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Variable\"\u003eReal interest rates\u003c/td\u003e\n\u003ctd data-label=\"General transmission channel\"\u003eReturns calculated by subtracting expected inflation from nominal interest rates affect currency demand\u003c/td\u003e\n\u003ctd data-label=\"Points to note when interpreting\"\u003eExpected inflation is not directly observable and varies depending on the measurement method\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Variable\"\u003eGrowth outlook\u003c/td\u003e\n\u003ctd data-label=\"General transmission channel\"\u003eMay raise expectations for investment and equity inflows\u003c/td\u003e\n\u003ctd data-label=\"Points to note when interpreting\"\u003eExpectations may simultaneously emerge that slower growth will lead to interest rate cuts\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Variable\"\u003eTrade and current account balances\u003c/td\u003e\n\u003ctd data-label=\"General transmission channel\"\u003eExport proceeds and demand for import payments affect currency supply and demand\u003c/td\u003e\n\u003ctd data-label=\"Points to note when interpreting\"\u003eOverseas investment income and corporate currency hedging can be as important as the goods balance\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Variable\"\u003eRisk aversion\u003c/td\u003e\n\u003ctd data-label=\"General transmission channel\"\u003eWhen a shock occurs, funds may move into highly liquid assets such as the dollar\u003c/td\u003e\n\u003ctd data-label=\"Points to note when interpreting\"\u003eReactions vary depending on the cause of each country’s shock and market positioning\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Variable\"\u003eGovernment intervention\u003c/td\u003e\n\u003ctd data-label=\"General transmission channel\"\u003eTrading with foreign exchange reserves or verbal warnings affects the speed and volatility of exchange rate moves\u003c/td\u003e\n\u003ctd data-label=\"Points to note when interpreting\"\u003eIntervention that runs counter to monetary policy and economic fundamentals may have only a short-lived effect\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Variable\"\u003ePosition unwinding\u003c/td\u003e\n\u003ctd data-label=\"General transmission channel\"\u003eSimultaneous liquidation of leveraged trades amplifies price movements\u003c/td\u003e\n\u003ctd data-label=\"Points to note when interpreting\"\u003eMovements can be faster and more nonlinear than changes in economic indicators\u003c/td\u003e\n\u003c/tr\u003e\n\u003c/tbody\u003e\n\u003c/table\u003e\u003c/div\u003e\n\u003cp\u003eInterest rate differentials are an important variable, but they are not a stand-alone formula. For example, even if U.S. interest rates are higher than South Korea’s, the won may strengthen if rapid U.S. rate cuts are expected or if South Korea’s exports and current account improve significantly.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#history-and-facts-of-japans-foreign-exchange-market-intervention\" class=\"anchor\" id=\"history-and-facts-of-japans-foreign-exchange-market-intervention\"\u003e\u003c/a\u003eHistory and Facts of Japan’s Foreign Exchange Market Intervention\u003c/h2\u003e\n\u003cp\u003eForeign exchange market intervention must be distinguished from policy rate adjustments. In Japan, authority over foreign exchange policy rests with the Ministry of Finance, while the Bank of Japan executes market transactions under the ministry’s direction. By contrast, the Bank of Japan determines monetary policy, including the policy rate and government bond purchases.\u003c/p\u003e\n\u003cdiv class=\"overflow-x-auto\"\u003e\u003ctable\u003e\n\u003cthead\u003e\n\u003ctr\u003e\n\u003cth\u003ePeriod\u003c/th\u003e\n\u003cth\u003eMarket conditions\u003c/th\u003e\n\u003cth\u003eDirection and significance of intervention\u003c/th\u003e\n\u003c/tr\u003e\n\u003c/thead\u003e\n\u003ctbody\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Period\"\u003e1995\u003c/td\u003e\n\u003ctd data-label=\"Market conditions\"\u003eRapid yen appreciation to below 80 yen per dollar\u003c/td\u003e\n\u003ctd data-label=\"Direction and significance of intervention\"\u003eJapan, the United States, and others responded by buying dollars and selling yen. The Great Hanshin-Awaji Earthquake was part of the backdrop that heightened economic anxiety at the time, but it is difficult to regard it as the sole cause of the strong yen.\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Period\"\u003e1998\u003c/td\u003e\n\u003ctd data-label=\"Market conditions\"\u003eYen depreciation into the 140-yen-per-dollar range amid the Asian financial crisis\u003c/td\u003e\n\u003ctd data-label=\"Direction and significance of intervention\"\u003eThe United States and Japan intervened by buying yen. Financial instability and concerns about neighboring countries’ currencies and export competitiveness were discussed together.\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Period\"\u003eMarch 2011\u003c/td\u003e\n\u003ctd data-label=\"Market conditions\"\u003eThe yen surged after the Great East Japan Earthquake\u003c/td\u003e\n\u003ctd data-label=\"Direction and significance of intervention\"\u003eThe G7 carried out coordinated intervention to sell yen. It was largely intended to curb expectations of repatriation after the disaster and speculative movements.\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Period\"\u003eSeptember–October 2022\u003c/td\u003e\n\u003ctd data-label=\"Market conditions\"\u003eThe yen weakened rapidly as the interest rate gap between the United States and Japan widened\u003c/td\u003e\n\u003ctd data-label=\"Direction and significance of intervention\"\u003eJapan sold dollars and bought yen. It was the first intervention to stem yen depreciation since 1998.\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Period\"\u003eApril–May and July 2024\u003c/td\u003e\n\u003ctd data-label=\"Market conditions\"\u003eThe yen weakened to around 160 per dollar and volatility increased\u003c/td\u003e\n\u003ctd data-label=\"Direction and significance of intervention\"\u003eJapanese Ministry of Finance data records large-scale intervention to buy yen. Changes in the policy rate and U.S. inflation data also affected the exchange rate during the same period.\u003c/td\u003e\n\u003c/tr\u003e\n\u003c/tbody\u003e\n\u003c/table\u003e\u003c/div\u003e\n\u003cp\u003eTherefore, the claim that intervention to stop yen depreciation occurred in 2026 for the first time in 28 years is invalid. The first yen-buying intervention since 1998 took place in 2022, and additional intervention was also confirmed in 2024. To determine whether a specific transaction in 2026 was official intervention, the monthly and quarterly intervention records published by Japan’s Ministry of Finance must be checked.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#criteria-for-determining-whether-intervention-succeeded\" class=\"anchor\" id=\"criteria-for-determining-whether-intervention-succeeded\"\u003e\u003c/a\u003eCriteria for Determining Whether Intervention Succeeded\u003c/h3\u003e\n\u003cp\u003eThe fact that the exchange rate fell immediately after intervention is not enough to conclude that it succeeded. At a minimum, the following items must be assessed separately.\u003c/p\u003e\n\u003col\u003e\n\u003cli\u003eDid excessive volatility decline immediately after the intervention?\u003c/li\u003e\n\u003cli\u003eDid the effect last for months rather than days?\u003c/li\u003e\n\u003cli\u003eDid the expected interest rate gap between the United States and Japan move in the same direction?\u003c/li\u003e\n\u003cli\u003eDid market participants believe that the government might intervene repeatedly?\u003c/li\u003e\n\u003cli\u003eWas the scale of intervention sufficient relative to market trading volume and foreign exchange reserves?\u003c/li\u003e\n\u003c/ol\u003e\n\u003cp\u003eCoordinated intervention can be more powerful than unilateral intervention because several countries send the same signal. However, if the monetary policy direction of major countries remains unchanged, there is no guarantee that it will alter the long-term trend.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#domestic-and-international-spillover-effects-of-a-super-weak-yen\" class=\"anchor\" id=\"domestic-and-international-spillover-effects-of-a-super-weak-yen\"\u003e\u003c/a\u003eDomestic and International Spillover Effects of a Super-Weak Yen\u003c/h2\u003e\n\u003ch3\u003e\n\u003ca href=\"#japanese-households-and-companies\" class=\"anchor\" id=\"japanese-households-and-companies\"\u003e\u003c/a\u003eJapanese Households and Companies\u003c/h3\u003e\n\u003cp\u003eA weak yen raises the yen-denominated prices of crude oil, gas, food, and raw materials. If wage growth fails to keep pace with inflation, households’ real purchasing power declines. On the other hand, companies with a high share of overseas sales may report higher earnings when foreign-currency profits are converted into yen, while spending by foreign visitors to Japan gains price competitiveness.\u003c/p\u003e\n\u003cp\u003eA weak yen therefore does not produce the same gains and losses across Japan. The beneficiaries and those bearing the burden differ depending on import dependence, the share of overseas production, currency hedging, and household income structures.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#relationship-with-us-treasury-yields\" class=\"anchor\" id=\"relationship-with-us-treasury-yields\"\u003e\u003c/a\u003eRelationship With U.S. Treasury Yields\u003c/h3\u003e\n\u003cp\u003eCaution is needed regarding the simple causal claim that a weak yen automatically raises long-term U.S. interest rates. If Japanese interest rates rise, Japanese investors may have less incentive to hold U.S. Treasuries while bearing currency-hedging costs, and the return of funds to Japan could put upward pressure on U.S. Treasury yields.\u003c/p\u003e\n\u003cp\u003eIn practice, however, U.S. Treasury yields are jointly determined by the Federal Reserve’s policy outlook, U.S. inflation and growth, the fiscal deficit, Treasury issuance, and global demand for safe assets. The movement of Japanese funds is one of several factors, not the sole cause.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#emerging-markets\" class=\"anchor\" id=\"emerging-markets\"\u003e\u003c/a\u003eEmerging Markets\u003c/h3\u003e\n\u003cp\u003eA strong dollar can increase principal and interest burdens for countries with large dollar-denominated debts and insufficient foreign exchange reserves. If the yen is also weak, exporters competing with Japanese companies may face price pressure.\u003c/p\u003e\n\u003cp\u003eHowever, not all emerging-market countries necessarily sell U.S. Treasuries to defend their exchange rates. Various tools are used, including policy rate adjustments, foreign exchange swaps, bank liquidity regulations, capital flow management, and verbal intervention. Whether U.S. Treasuries were actually sold must be verified through country-specific data on foreign exchange reserves and asset holdings.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#the-bank-of-japans-dilemma-and-the-yen-carry-trade\" class=\"anchor\" id=\"the-bank-of-japans-dilemma-and-the-yen-carry-trade\"\u003e\u003c/a\u003eThe Bank of Japan’s Dilemma and the Yen Carry Trade\u003c/h2\u003e\n\u003cp\u003eExplaining the Bank of Japan’s difficulty in raising rates quickly solely in terms of fear rooted in the past is incomplete. Policy decisions take into account the persistence of inflation, wage growth, consumption and investment, government bond market functioning, and the interest burden on the government and private sector.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#trade-offs-created-by-raising-interest-rates\" class=\"anchor\" id=\"trade-offs-created-by-raising-interest-rates\"\u003e\u003c/a\u003eTrade-Offs Created by Raising Interest Rates\u003c/h3\u003e\n\u003cdiv class=\"overflow-x-auto\"\u003e\u003ctable\u003e\n\u003cthead\u003e\n\u003ctr\u003e\n\u003cth\u003eExpected effects of interest rate increases\u003c/th\u003e\n\u003cth\u003eCosts that may arise simultaneously\u003c/th\u003e\n\u003c/tr\u003e\n\u003c/thead\u003e\n\u003ctbody\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Expected effects of interest rate increases\"\u003eExpectations of a narrower U.S.-Japan interest rate gap and reduced yen depreciation\u003c/td\u003e\n\u003ctd data-label=\"Costs that may arise simultaneously\"\u003eHigher borrowing costs for households and companies\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Expected effects of interest rate increases\"\u003eReduced import-price pressure\u003c/td\u003e\n\u003ctd data-label=\"Costs that may arise simultaneously\"\u003ePotential slowdown in consumption and capital investment\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Expected effects of interest rate increases\"\u003ePotential improvement in financial institutions’ net interest margins\u003c/td\u003e\n\u003ctd data-label=\"Costs that may arise simultaneously\"\u003eValuation losses on bond holdings and greater government bond market volatility\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Expected effects of interest rate increases\"\u003eMonetary policy normalization\u003c/td\u003e\n\u003ctd data-label=\"Costs that may arise simultaneously\"\u003eRisk of a gradual increase in interest costs on enormous government debt\u003c/td\u003e\n\u003c/tr\u003e\n\u003c/tbody\u003e\n\u003c/table\u003e\u003c/div\u003e\n\u003cp\u003eIt is true that past cases in which Japan’s economy deteriorated after rate increases have influenced policy caution. However, Japan’s prolonged deflation cannot be explained by a single rate increase. The collapse of asset prices, financial institution distress, demographic structure, low expected inflation, and shocks to the global economy all played a role.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#what-the-2024-yen-carry-unwind-revealed\" class=\"anchor\" id=\"what-the-2024-yen-carry-unwind-revealed\"\u003e\u003c/a\u003eWhat the 2024 Yen Carry Unwind Revealed\u003c/h3\u003e\n\u003cp\u003eThe yen carry trade is a strategy of borrowing yen at low interest rates and then investing in dollar bonds, stocks, or other higher-yielding assets. Losses on this trade can increase when Japanese interest rates rise, U.S. rate cuts are expected, or the yen suddenly strengthens.\u003c/p\u003e\n\u003cp\u003eOn July 31, 2024, the Bank of Japan raised its short-term policy rate target to approximately 0.25%. As concerns about a U.S. economic slowdown, a correction in technology stocks, and the unwinding of crowded positions converged, the Nikkei 225 fell by more than 12% on August 5. It is inaccurate to conclude that this was caused solely by Japan’s rate increase or to say that the Bank of Japan reversed its policy within two days. A Bank of Japan official signaled that the bank would not rush additional increases in an unstable market, but it did not cancel the July rate increase itself.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#the-structure-determining-the-won-dollar-exchange-rate\" class=\"anchor\" id=\"the-structure-determining-the-won-dollar-exchange-rate\"\u003e\u003c/a\u003eThe Structure Determining the Won-Dollar Exchange Rate\u003c/h2\u003e\n\u003cp\u003eA rise in the won-dollar exchange rate means that more won is needed to buy one dollar, indicating won weakness. An inverted South Korea-U.S. policy rate differential can increase the relative attractiveness of dollar assets, but actual capital flows reflect currency-hedging costs, the equity market outlook, and credit risk.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#indicators-to-check-beyond-the-interest-rate-differential\" class=\"anchor\" id=\"indicators-to-check-beyond-the-interest-rate-differential\"\u003e\u003c/a\u003eIndicators to Check Beyond the Interest Rate Differential\u003c/h3\u003e\n\u003cul\u003e\n\u003cli\u003eThe dollar index and real U.S. Treasury yields\u003c/li\u003e\n\u003cli\u003eSouth Korea’s goods balance and current account balance\u003c/li\u003e\n\u003cli\u003eSemiconductor exports and terms of trade\u003c/li\u003e\n\u003cli\u003eNet purchases of domestic stocks and bonds by foreign investors\u003c/li\u003e\n\u003cli\u003eOverseas securities investment by domestic institutions and individuals\u003c/li\u003e\n\u003cli\u003eEnergy import prices and international oil prices\u003c/li\u003e\n\u003cli\u003eChina’s economy and movements in the yuan\u003c/li\u003e\n\u003cli\u003eGeopolitical risks and global volatility indices\u003c/li\u003e\n\u003cli\u003eExpectations for the future rate paths of the South Korean and U.S. central banks\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003eThe Bank of Korea does not have to match U.S. interest rates exactly solely for the sake of the exchange rate. Monetary policy comprehensively considers price stability, financial stability, and growth conditions. Raising rates may support the won, but it can increase the interest burden on household debt and deepen the slowdown in domestic demand. Conversely, lowering rates may help the economy and financing costs, but all else being equal, it can increase pressure for won depreciation.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#a-strong-won-is-not-always-beneficial\" class=\"anchor\" id=\"a-strong-won-is-not-always-beneficial\"\u003e\u003c/a\u003eA Strong Won Is Not Always Beneficial\u003c/h3\u003e\n\u003cp\u003eA stronger won reduces the cost of imported raw materials and overseas travel, as well as the won-converted burden of foreign-currency debt. On the other hand, it may reduce the won value of exporters’ foreign-currency revenue. Actual export competitiveness is more closely reflected by the real effective exchange rate, which compares the won with competitor currencies such as the yen, yuan, and euro, than by the won-dollar exchange rate alone.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#relative-exchange-rates-and-policy-mixes-matter-more-than-numbers\" class=\"anchor\" id=\"relative-exchange-rates-and-policy-mixes-matter-more-than-numbers\"\u003e\u003c/a\u003eRelative Exchange Rates and Policy Mixes Matter More Than Numbers\u003c/h2\u003e\n\u003cp\u003eLooking only at the exchange rate level can cause important information to be missed. If the won and yen strengthen against the dollar at the same time, changes in South Korean companies’ price competitiveness against Japan may be limited. Conversely, if only the won strengthens while the yen remains weak, the burden may increase for industries competing with Japanese companies.\u003c/p\u003e\n\u003cp\u003eForeign exchange market analysis should compare the following three factors together.\u003c/p\u003e\n\u003col\u003e\n\u003cli\u003eMovements of the domestic currency against the dollar\u003c/li\u003e\n\u003cli\u003eCross-rates against the currencies of major competitors\u003c/li\u003e\n\u003cli\u003eThe real effective exchange rate, which reflects inflation differentials\u003c/li\u003e\n\u003c/ol\u003e\n\u003cp\u003eThis relative-price perspective captures an aspect that a simple dollar exchange rate forecast can easily miss. The effect of exchange rates on exports also varies by company depending on the share of overseas production, the cost of imported intermediate goods, settlement currencies, and currency hedging.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#a-practical-verification-method-for-identifying-foreign-exchange-market-intervention\" class=\"anchor\" id=\"a-practical-verification-method-for-identifying-foreign-exchange-market-intervention\"\u003e\u003c/a\u003eA Practical Verification Method for Identifying Foreign Exchange Market Intervention\u003c/h2\u003e\n\u003cp\u003eNot every sudden exchange rate movement is government intervention. To distinguish market rumors from official intervention, check in the following order.\u003c/p\u003e\n\u003col\u003e\n\u003cli\u003eCheck whether the fiscal authorities have answered questions about whether intervention occurred.\u003c/li\u003e\n\u003cli\u003eWhen the official monthly intervention total is released, compare it to determine whether a transaction took place.\u003c/li\u003e\n\u003cli\u003eWhen quarterly daily data is released, check the transaction date and amount.\u003c/li\u003e\n\u003cli\u003eReview inflation, employment, and central bank remarks released at the same time.\u003c/li\u003e\n\u003cli\u003eExamine whether options volatility, interest rates, and stock prices moved simultaneously, not just the spot exchange rate.\u003c/li\u003e\n\u003c/ol\u003e\n\u003cp\u003eThe government may decline to confirm intervention immediately after a transaction to preserve its effectiveness. Therefore, reports that determine the scale and parties involved based only on sharp intraday movements should be treated as provisional information.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#principles-for-investing-in-exchange-rates-dollars-and-yen\" class=\"anchor\" id=\"principles-for-investing-in-exchange-rates-dollars-and-yen\"\u003e\u003c/a\u003ePrinciples for Investing in Exchange Rates, Dollars, and Yen\u003c/h2\u003e\n\u003cp\u003eIt is difficult to consistently identify exchange rate peaks and troughs. However, that does not mean a particular currency will rise forever or that dollar dominance is permanently guaranteed. The dollar maintains a central position in international foreign exchange reserves, trade settlement, and financial markets, but its share and manner of use may change depending on policies, sanctions, and market infrastructure.\u003c/p\u003e\n\u003cp\u003eIndividual investors are better off defining their objectives before forming a forecast.\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003eMoney with a fixed spending date, such as tuition abroad or travel expenses, should be exchanged in installments on multiple dates.\u003c/li\u003e\n\u003cli\u003eFor overseas stock investments, calculate equity risk and exchange rate risk separately.\u003c/li\u003e\n\u003cli\u003eIf most income and spending are in won, approach foreign-currency assets as a means of diversification.\u003c/li\u003e\n\u003cli\u003eLeveraged foreign exchange products and unhedged debt-financed investments can generate large losses from even small exchange rate movements.\u003c/li\u003e\n\u003cli\u003eSet target allocations and rebalance when exchange rate changes cause allocations to deviate substantially.\u003c/li\u003e\n\u003cli\u003eWhen comparing interest income, include taxes, fees, foreign exchange spreads, and hedging costs.\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003eBuying in installments only diversifies timing risk; it does not prevent losses. If investors continue buying a currency that declines over a long period, the average purchase price may fall while the total loss increases.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#five-pillars-for-reading-the-future-macroeconomy\" class=\"anchor\" id=\"five-pillars-for-reading-the-future-macroeconomy\"\u003e\u003c/a\u003eFive Pillars for Reading the Future Macroeconomy\u003c/h2\u003e\n\u003ch3\u003e\n\u003ca href=\"#1-geopolitics-and-energy-prices\" class=\"anchor\" id=\"1-geopolitics-and-energy-prices\"\u003e\u003c/a\u003e1. Geopolitics and Energy Prices\u003c/h3\u003e\n\u003cp\u003eConflict in the Middle East and instability along major maritime shipping routes can raise oil, gas, and freight prices. This can worsen inflation and trade balances in importing countries and delay central bank rate cuts. However, the actual impact depends on the scale and duration of supply disruptions.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#2-k-shaped-gaps-in-assets-and-income\" class=\"anchor\" id=\"2-k-shaped-gaps-in-assets-and-income\"\u003e\u003c/a\u003e2. K-Shaped Gaps in Assets and Income\u003c/h3\u003e\n\u003cp\u003eTechnological change and rising asset prices can provide greater benefits to groups with capital, skills, and market power. However, polarization is not an inevitable law of nature. Taxation, education, competition policy, and labor market institutions can change distributional outcomes.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#3-federal-reserve-independence-and-policy-credibility\" class=\"anchor\" id=\"3-federal-reserve-independence-and-policy-credibility\"\u003e\u003c/a\u003e3. Federal Reserve Independence and Policy Credibility\u003c/h3\u003e\n\u003cp\u003eChanges in Federal Reserve leadership are important, but a particular candidate or policy direction should not be treated as settled before the official process. Markets evaluate the price stability objective, congressional oversight, the composition of the policy committee, and whether central bank independence is maintained, rather than the individual alone.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#4-ai-investment-and-productivity\" class=\"anchor\" id=\"4-ai-investment-and-productivity\"\u003e\u003c/a\u003e4. AI Investment and Productivity\u003c/h3\u003e\n\u003cp\u003eInvestment in AI data centers and semiconductors can increase demand for electricity, equipment, and capital goods. It may raise productivity over the long term, but the speed at which it translates into corporate earnings and economy-wide productivity is uncertain. Overinvestment and power constraints must also be examined.\u003c/p\u003e\n\u003ch3\u003e\n\u003ca href=\"#5-the-dollars-international-role\" class=\"anchor\" id=\"5-the-dollars-international-role\"\u003e\u003c/a\u003e5. The Dollar’s International Role\u003c/h3\u003e\n\u003cp\u003eThe dollar’s status derives from the scale and liquidity of U.S. financial markets, legal credibility, the Treasury market, payment networks, and the limitations of alternative currencies. The possibility of a gradual decline in the dollar’s share and the resurgence of dollar demand during crises can occur simultaneously. Therefore, both extremes—an immediate collapse of dollar dominance and its permanent immutability—should be treated with caution.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#how-to-read-exchange-rate-forecasts-through-scenarios\" class=\"anchor\" id=\"how-to-read-exchange-rate-forecasts-through-scenarios\"\u003e\u003c/a\u003eHow to Read Exchange Rate Forecasts Through Scenarios\u003c/h2\u003e\n\u003cdiv class=\"overflow-x-auto\"\u003e\u003ctable\u003e\n\u003cthead\u003e\n\u003ctr\u003e\n\u003cth\u003eScenario\u003c/th\u003e\n\u003cth\u003eFactors favorable to the yen\u003c/th\u003e\n\u003cth\u003eFactors favorable to the won\u003c/th\u003e\n\u003cth\u003eKey downside risks\u003c/th\u003e\n\u003c/tr\u003e\n\u003c/thead\u003e\n\u003ctbody\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Scenario\"\u003eSlower U.S. inflation and falling interest rates\u003c/td\u003e\n\u003ctd data-label=\"Factors favorable to the yen\"\u003eNarrower U.S.-Japan interest rate gap\u003c/td\u003e\n\u003ctd data-label=\"Factors favorable to the won\"\u003eDollar weakness and recovery in risk appetite\u003c/td\u003e\n\u003ctd data-label=\"Key downside risks\"\u003eIf the U.S. recession deepens, demand for the dollar as a safe asset may increase\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Scenario\"\u003eVirtuous cycle of wages and prices in Japan\u003c/td\u003e\n\u003ctd data-label=\"Factors favorable to the yen\"\u003eGradual monetary policy normalization by the Bank of Japan\u003c/td\u003e\n\u003ctd data-label=\"Factors favorable to the won\"\u003eA stronger yen may improve South Korea’s relative export conditions\u003c/td\u003e\n\u003ctd data-label=\"Key downside risks\"\u003eSlower domestic demand in Japan and increased market volatility\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Scenario\"\u003eSurge in international oil prices\u003c/td\u003e\n\u003ctd data-label=\"Factors favorable to the yen\"\u003ePotential for some safe-haven characteristics to take effect\u003c/td\u003e\n\u003ctd data-label=\"Factors favorable to the won\"\u003eLimited\u003c/td\u003e\n\u003ctd data-label=\"Key downside risks\"\u003eDeteriorating trade balances in energy-importing Japan and South Korea\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Scenario\"\u003eIncreased global risk aversion\u003c/td\u003e\n\u003ctd data-label=\"Factors favorable to the yen\"\u003ePotential yen strength during position unwinding\u003c/td\u003e\n\u003ctd data-label=\"Factors favorable to the won\"\u003eGenerally downward pressure on the won\u003c/td\u003e\n\u003ctd data-label=\"Key downside risks\"\u003eDirection varies depending on the source of the shock and the policy response\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Scenario\"\u003eImproved South Korean exports and growth\u003c/td\u003e\n\u003ctd data-label=\"Factors favorable to the yen\"\u003eLimited direct effect\u003c/td\u003e\n\u003ctd data-label=\"Factors favorable to the won\"\u003eImproved current account and foreign capital flows\u003c/td\u003e\n\u003ctd data-label=\"Key downside risks\"\u003eGreater dollar strength may offset won appreciation\u003c/td\u003e\n\u003c/tr\u003e\n\u003c/tbody\u003e\n\u003c/table\u003e\u003c/div\u003e\n\u003cp\u003eExchange rate forecasts are more accurate when expressed as conditional scenarios rather than a single target value. This also makes it possible to identify which assumption was wrong when a forecast misses the mark.\u003c/p\u003e\n","tags":["Monetary policy","Korean won","Foreign exchange market","Geopolitics","Exchange rate","Japanese yen"],"faqs":[{"question":"Was 2026 the first time in 28 years that Japan intervened to prevent the yen from weakening?","answer":"No. Japan intervened to buy yen in September and October 2022, marking its first intervention to prevent the yen from weakening since 1998. Official data also confirm yen-buying interventions in April–May and July 2024."},{"question":"Does the Bank of Japan decide whether to intervene in the foreign exchange market?","answer":"Japan's Ministry of Finance oversees foreign exchange policy, while the Bank of Japan executes transactions under the Ministry's instructions. Monetary policy, including policy rates and government bond purchases, is decided by the Bank of Japan's Policy Board, so foreign exchange intervention and interest rate decisions are separate policies."},{"question":"Can foreign exchange market intervention alone change the long-term exchange rate trend?","answer":"Intervention can curb sharp movements and speculative positions, but it does not always change the long-term trend. Its effects are more likely to last longer when expected interest rate differentials, inflation, growth rates, and capital flows support the direction of the intervention."},{"question":"Why does the yen carry trade amplify surges in the yen and declines in stock prices?","answer":"For trades that involve borrowing yen at low interest rates to invest in other assets, funding costs and foreign exchange losses increase when the yen strengthens or Japanese interest rates rise. If investors simultaneously repay yen and sell risky assets, the yen's rise and the decline in stock prices can amplify each other."},{"question":"Was the Japanese stock market crash in August 2024 caused by the Bank of Japan's interest rate hike?","answer":"While the interest rate hike and the stronger yen did help accelerate the unwinding of positions, it is difficult to attribute the crash to a single cause. Concerns about a slowdown in the U.S. economy, weakness in technology stocks, crowded leveraged trades, and market liquidity also played a role."},{"question":"Is the won–dollar exchange rate determined by the difference between South Korean and U.S. policy rates?","answer":"The interest rate differential is one of the key variables, but it is not the only one. The dollar's global strength or weakness, South Korea's current account and exports, foreign portfolio investment flows, international oil prices, China's economy, and risk aversion must also be considered."},{"question":"If the Bank of Korea raises interest rates, does the won–dollar exchange rate necessarily fall?","answer":"An interest rate hike is generally favorable for the won, but it does not guarantee a decline in the exchange rate. If U.S. interest rates rise even more during the same period or risk aversion intensifies in global financial markets, dollar strength may outweigh the effect of the rate hike."},{"question":"Is a stronger won always good for the South Korean economy?","answer":"A stronger won reduces import prices and the burden of foreign currency debt, but it can be disadvantageous for exporters' revenue when converted into won. The actual effects vary depending on the currencies of competing countries, the share of imported intermediate goods, overseas production, and whether currency hedging is used."},{"question":"Can a sudden exchange rate movement be assumed to be government intervention?","answer":"A sudden movement alone is not enough to confirm intervention. Economic indicators, central bank statements, and the large-scale unwinding of positions can produce similar movements, so the financial authorities' monthly totals and the daily data released later must be checked."},{"question":"Can buying dollars or yen in installments prevent losses?","answer":"Buying in installments reduces the risk of trading the entire amount on a specific date, but it does not guarantee against losses. If a currency declines for an extended period, total losses may grow, so you should first determine the purpose of use, target allocation, investment period, and the amount of loss you can tolerate."},{"question":"Will the dollar's status as a reserve currency last forever?","answer":"The dollar maintains its central position based on the size and liquidity of its financial markets, its payment network, and the U.S. Treasury market, but its permanence cannot be guaranteed. A gradual shift in the share of reserve currencies and an increase in demand for dollars during crises can occur at the same time."}],"sources":[{"url":"https://www.mof.go.jp/english/policy/international_policy/reference/feio/index.html","title":"Japan Ministry of Finance: Foreign Exchange Intervention Operations","type":"data_point"},{"url":"https://www.boj.or.jp/en/mopo/index.htm","title":"Bank of Japan: Monetary Policy","type":"source"},{"url":"https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2024/k240731a.pdf","title":"Bank of Japan: Change in the Guideline for Money Market Operations, July 31, 2024","type":"data_point"},{"url":"https://ecos.bok.or.kr/","title":"Bank of Korea Economic Statistics System ECOS","type":"data_point"},{"url":"https://home.treasury.gov/policy-issues/international/macroeconomic-and-foreign-exchange-policies-of-major-trading-partners","title":"U.S. Treasury: Macroeconomic and Foreign Exchange Policies of Major Trading Partners","type":"source"},{"url":"https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-u-s-dollar-20240620.html","title":"Federal Reserve: The International Role of the U.S. Dollar","type":"source"},{"url":"https://www.jpx.co.jp/english/markets/indices/index.html","title":"Japan Exchange Group: Indices","type":"data_point"}],"images":[{"id":701,"url":"https://injoys.com/rails/active_storage/blobs/proxy/eyJfcmFpbHMiOnsiZGF0YSI6ODc5MSwicHVyIjoiYmxvYl9pZCJ9fQ==--b754a36a4d5514de9197005dfd5f3fc1707da4ac/ai-d980ec4d.webp","is_representative":true,"generation_method":"ai_image","license":"ai_generated","mime_type":"image/webp","translations":{"ko":{"alt":"일본·한국·미국 지도와 중앙은행, 무역선, 유가 배럴, 환율 곡선을 결합한 일러스트","caption":"세 나라를 잇는 자금과 무역의 흐름이 환율 개입과 시장 변동의 구조를 보여준다.","description":null},"en":{"alt":"Illustration of Japan, South Korea and US maps with a central bank, trade ship, oil barrel and market curves","caption":"Flows of money and trade between the three countries frame the history of exchange-rate intervention.","description":null},"ja":{"alt":"日本・韓国・米国の地図と中央銀行、貿易船、石油樽、相場曲線を描いたイラスト","caption":"3カ国を結ぶ資金と貿易の流れが、為替介入と市場変動の構造を示している。","description":null},"es":{"alt":"Mapas de Japón, Corea del Sur y EE. UU. con banco central, buque, barril de petróleo y curvas de mercado","caption":"Los flujos de dinero y comercio entre los tres países contextualizan la intervención cambiaria.","description":null},"id":{"alt":"Ilustrasi peta Jepang, Korea Selatan, dan AS dengan bank sentral, kapal dagang, barel minyak, dan grafik pasar","caption":"Arus uang dan perdagangan ketiga negara menggambarkan struktur intervensi nilai tukar dan gejolak pasar.","description":null},"pt":{"alt":"Mapas do Japão, Coreia do Sul e EUA com banco central, navio, barril de petróleo e curvas de mercado","caption":"Os fluxos de dinheiro e comércio entre os três países contextualizam a intervenção cambial.","description":null},"zh-hant":{"alt":"日本、韓國與美國地圖，搭配中央銀行、貨輪、油桶及匯市曲線的插畫","caption":"三國之間的資金與貿易流動呈現匯率干預和市場波動的結構。","description":null},"de":{"alt":"Karten von Japan, Südkorea und den USA mit Zentralbank, Frachtschiff, Ölfass und Marktkurven","caption":"Geld- und Handelsströme zwischen den drei Ländern veranschaulichen Deviseninterventionen und Marktschwankungen.","description":null}}},{"id":702,"url":"https://injoys.com/rails/active_storage/blobs/proxy/eyJfcmFpbHMiOnsiZGF0YSI6ODc5NywicHVyIjoiYmxvYl9pZCJ9fQ==--5cb96a91030938327be3ead3e1c91f0264c5b0b0/ai-3141718e.webp","is_representative":false,"generation_method":"ai_image","license":"ai_generated","mime_type":"image/webp","translations":{"ko":{"alt":"일본·한국·미국 지도 아래 무역품과 자산을 저울질하는 동전 흐름 일러스트","caption":"세 나라의 통화 흐름과 무역, 자산 가치의 균형을 저울과 동전으로 표현했다.","description":null},"en":{"alt":"Coins flow around maps of Japan, Korea and the US as a scale weighs trade goods and assets","caption":"The illustration links currency flows among the three economies with trade and asset values.","description":null},"ja":{"alt":"日本・韓国・米国の地図の下で、貿易品と資産を量る天秤を巡る硬貨の流れ","caption":"3カ国の通貨の流れと貿易、資産価値の均衡を天秤と硬貨で表している。","description":null},"es":{"alt":"Monedas fluyen entre mapas de Japón, Corea y EE. UU. alrededor de una balanza con bienes y activos","caption":"La ilustración relaciona los flujos de divisas de las tres economías con el comercio y los activos.","description":null},"id":{"alt":"Koin mengalir di antara peta Jepang, Korea, dan AS mengitari neraca berisi barang dagang dan aset","caption":"Ilustrasi ini menghubungkan arus mata uang ketiga ekonomi dengan perdagangan dan nilai aset.","description":null},"pt":{"alt":"Moedas fluem entre mapas do Japão, Coreia e EUA ao redor de uma balança com mercadorias e ativos","caption":"A ilustração relaciona os fluxos cambiais das três economias ao comércio e aos valores dos ativos.","description":null},"zh-hant":{"alt":"日韓美地圖下方，硬幣環繞衡量貿易商品與資產的天平流動","caption":"插圖以天平與硬幣呈現三國之間的貨幣流動、貿易及資產價值平衡。","description":null},"de":{"alt":"Münzen fließen zwischen Karten Japans, Koreas und der USA um eine Waage mit Waren und Vermögenswerten","caption":"Die Illustration verknüpft die Währungsströme der drei Volkswirtschaften mit Handel und Vermögenswerten.","description":null}}}],"published_at":"2026-08-17T09:35:17+09:00","updated_at":"2026-08-17T09:35:17+09:00","license":"cc_by","translation_status":"reviewed","available_locales":["ko","en","ja","es"],"data_locales":["ko","en","ja","es","id","pt","zh-hant","de"],"url":"https://injoys.com/en/articles/exchange-rate-intervention-yen-won-dollar-macro-analysis"}