Below are details on how yen-buying intervention typically works as well as the challenges to that effort.Given the economy's heavy reliance on exports, Japan has historically focused on arresting sharp yen rises and taken a hands-off approach on yen falls.Yen-buying intervention has been very rare. The last time Japan intervened to support its currency was in 1998, when the Asian financial crisis triggered a yen sell-off and a rapid capital outflow from the region.
Some policymakers say intervention only becomes an option if Japan faces a "triple" threat - selling of yen, domestic stocks and bonds - in what would be similar to sharp capital outflows experienced in some emerging economies.When Japan intervenes to stem yen rises, the Ministry of Finance issues short-term bills to raise yen which it can then sell in the market to weaken the Japanese currency's value.
In both cases, the finance minister will issue the final order to intervene. The Bank of Japan will act as an agent and execute the order in the market.Japan's foreign reserves stand at $1.33 trillion, the world's largest after China's and likely composed mostly of dollars. While abundant, reserves could quickly dwindle if huge sums are required to influence rates each time Tokyo steps in.
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