With the yen in freefall, Japan on Thursday took the unusual step of intervening in currency markets to prop up the yen’s value. For the first time in 24 years, the government began selling dollars to buy yen.
The move came soon after the Bank of Japan held its policy rate at sub-zero levels, bucking the trend by other central banks to raise their policy rates in response to inflation.
By the close of trading in London, the yen, which had depreciated by roughly 25% since Jan. 1, had regained about 2% of its value.
The question now becomes whether other developed economies will assist Japan in lowering the cost of imported oil and food priced in dollars.
Intervention has worked best when it is a coordinated effort. In the current case, all economies would stand to benefit from dollar depreciation as a counter to surging energy costs and shortages of supply.
The yen does not usually appreciate when the Bank of Japan is pursuing an accommodative monetary policy. This intervention, if nothing else, is meant to send a signal to the markets that Japan will not long tolerate a yen that has fallen to such a low level.