Japan has two more windows for yen intervention by IMF rules

Published Tue, May 5, 2026 · 07:23 PM

[TOKYO] Japan can conduct only two more sessions of three-day interventions by November if it wants to maintain its status of having a freely floating exchange rate, based on International Monetary Fund (IMF) guidelines.

An official from the country’s finance ministry cited an IMF rule on Monday (May 4), noting that three days of intervention count as a single market operation.

The comments came after the yen surged last Thursday following reported intervention by the authorities.

A number of intraday rallies also took place in the following days.

Still, market participants are largely of the view the yen will resume its weakening trend with or without official intervention.

The Iran war is a negative for Japan’s energy-import reliant economy. The still-wide interest-rate differentials with the US are denting sentiment, ensuring the currency remains under pressure.

Regarding further intervention, Abbas Keshvani, director of Asia macro strategy at RBC Capital Markets in Singapore, said: “Will they make use of it? Yes, especially given spot is stalking the 160 level.

“Will it be effective? They can cap spot in the short term but beyond that, the fundamental drivers of yen weakness are still in play.”

The yen strengthened as much as 0.8 per cent in Asia on Monday before paring gains, sparking discussions on trading floors regarding the possibility of officials wading into markets once again to bolster the currency.

The surge came after Japan likely spent around 5.4 trillion yen (S$43.8 billion) last week to support the yen, following the currency weakening past 160 per US dollar.

The yen was little changed on Tuesday at 157.24 per US dollar. 

Brendan Fagan, Bloomberg’s Markets Live strategist, said: “The question now is whether authorities are forced back into action, but the bar looks higher in an environment where active war is the main driver.”

IMF rules state that up to three episodes of currency interventions within six months is consistent with a free-floating exchange-rate regime, Japan’s finance ministry official said on Monday.

If the authorities exceed that number, then the IMF tends to classify the exchange-rate regime as floating rather than free floating, the official added.

The IMF did not immediately respond to queries.

Hard for IMF to enforce currency rules

Joey Chew, head of Asia foreign-exchange research at HSBC, said that “Japan has a lot of FX reserves” to give it the firepower needed to intervene in markets.

“It’s about the efficacy – whether it’s good timing to do it right now, when oil prices are still rising.”

Satsuki Katayama, Japan’s finance minister, said on Monday that the authorities can take bold action on speculative currency moves in line with a US-Japan agreement.

Even if Japan is on a public holiday, intervention can still be counted if global markets are open, an official said.

Some in the market are pondering the possible consequences if Japan decides to conduct more operations than the three allowed under the IMF guidelines. 

Rodrigo Catril, a strategist at National Australia Bank in Sydney, said: “We are still a long way from there, but history shows that it is hard for the IMF to enforce currency rules.”

He added that “future FX interventions should be expected” unless a material change in factors, such as Japan’s ultra-loose fiscal policies, takes place.

Options traders still see a roughly 52 per cent chance the yen will weaken to the 160 per US dollar level again by the end of June, the data compiled by Bloomberg showed. 

Damien Loh, chief investment officer at Ericsenz Capital in Singapore, said: “Without the Bank of Japan hiking at a pace commensurate to inflation, the yen will only weaken.” BLOOMBERG