On Thursday, Japan intervened in the Japanese yen after the release of US CPI data, with 35 trillion yen!

According to media analysis of the central bank's account, on Thursday, the Japanese authorities intervened in the foreign exchange market for the third time this year after the release of US CPI data.

Reports indicate that the Bank of Japan's daily operation data released on Friday showed that the Bank of Japan spent ¥3.37-3.57 trillion (US$211.8-220 billion) buying yen on Thursday, less than three months since the last intervention.

Based on official data released by the US on Thursday, inflation in June cooled more than expected, boosting expectations of two or even three interest rate cuts this year, leading to the largest drop in the US dollar since May this year.

The Japanese authorities seemed to have taken advantage of this market sentiment and quickly took action to boost the yen. On Thursday, minutes after the release of US CPI data, the USD/JPY exchange rate suddenly surged to 157.44, a nearly 3% increase, marking the largest single-day gain since the end of 2022.

As of the time of writing, the USD/JPY is trading around 159. Due to the significant interest rate differential between the US and Japan, the yen hit its lowest level in thirty-eight years last week, with the yen to US dollar exchange rate falling by over 11% so far this year.

Charu Chanana, head of forex strategy at Shengbao Bank, said, "Today seems to be a turbulent day, with the market feeling nervous about intervention, but arbitrage remains very attractive for shorting the yen, and with the slight change in fundamentals after the decline in US CPI data last night, the change is minimal."

Senior diplomat Masato Kanda of the Tokyo Foreign Exchange Bureau said on Friday that the authorities will take action in the foreign exchange market as needed but declined to comment on whether intervention measures would be taken.

"In the floating rate market, currency intervention is certainly rare, but we need to respond appropriately to excessive fluctuations or disorderly changes," Kanda said.

The Japanese authorities intervened in the exchange rate at the end of April and early May, buying ¥9.8 trillion (approximately US$615.5 billion). The Ministry of Finance will release a report at the end of the month confirming the amount spent on intervention measures.

Unlike previous intervention actions, this is the first time since September 2022 that the Japanese authorities have taken action when the yen strengthened against the US dollar. This shift in strategy marks a new step for the Japanese authorities in curbing speculation in the foreign exchange market